Broker-Dealer Fined for Supervisory Failures Over Margin Use

A broker-dealer settled FINRA charges for failing to assess the suitability of margin use in customer accounts and to monitor for excessive margin trading. The firm's CEO simultaneously settled charges for failing to monitor for unsuitable margin trading and for mutual fund switch transactions in customer accounts.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer's margin trading policies did not include any eligibility requirements nor guidance on what to consider when assessing suitability. FINRA said that the policies also failed to provide any guidance on monitoring for excessive margin use. FINRA found that the firm's CEO had approved two customer accounts for margin trading but failed to identify when those accounts were subject to excessive margin use. Separately, FINRA said that the CEO failed to supervise the recommendation of mutual fund switch transactions that resulted in customers unknowingly incurring significant costs.

FINRA determined that the broker-dealer and its CEO violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $35,000 and (iii) restitution of $112,672 plus interest. The firm's CEO agreed to (i) a civil monetary penalty of $5,000, (ii) a 15-business-day suspension from associating with any FINRA member firm and (iii) 20 hours of continuing education concerning supervisory responsibilities.