FINRA Fines Firm for Accounting and Registration Violations

A firm settled FINRA charges for improperly recording certain payments as expenses rather than as capital distribution and for allowing an unregistered person to perform a role requiring registration as an Operations Professional.

According to the AWC, during the relevant period, the firm paid several million dollars to its corporate parent, but improperly recorded the payments as expenses rather than as capital distributions. FINRA found that this practice resulted in inaccurate general ledgers, net capital computations, and incorrect FOCUS filings. FINRA also determined that the firm failed to establish and maintain a supervisory system reasonably designed to ensure proper recordkeeping for these payments.

FINRA also found that during the relevant period, the firm allowed an unregistered individual to supervise the firm's accounting department with the authority to sign checks and withdraw funds. FINRA found that these functions required an individual to be registered as an Operations Professional.

FINRA concluded that the firm violated Exchange Act Section 17(a) ("Records and Reports") and Rules 17a-3 ("Records to be made by certain exchange members, brokers and dealers") and 17a-5 ("Reports to be made by certain brokers and dealers"), as well as FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision"), 4511 ("General Requirements"), and 1210/NASD Rule 1031 ("Registration Requirements").

To settle the charges, the firm agreed to (i) a censure, (ii) a $275,000 fine, and (iii) an undertaking to certify that it implemented a supervisory system to address the books and records issues identified in the AWC.