FINRA Suspends Broker for Undisclosed Outside Business Activity
Commentary by Steven Lofchie
FINRA suspended a broker for failing to disclose outside business activity involving the marketing and sale of an automated foreign exchange trading algorithm.
According to the AWC, the broker formed an LLC to operate the venture and promoted the product across multiple social media platforms. FINRA found that nine individuals purchased the algorithm for $2,000, each resulting in approximately $13,000 in net proceeds. (Two buyers later requested and received refunds.) FINRA found that the broker ultimately ceased operating the business.
FINRA concluded that the broker violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3270 ("Outside Business Activities of Registered Persons").
To settle the charges, the broker agreed to (i) a three-month suspension from associating with any FINRA member in all capacities and (ii) a $5,000 fine.
Commentary
Firms should warn their employees about a significant trend in enforcement actions against brokers failing to make proper disclosure of outside business activities.