FINRA Podcast: Quarterly Disciplinary Review - July 2013
FINRA released a podcast discussing examples of misconduct by registered representatives. A written summary is provided.
Failure to Notify Firm of Outside Brokerage Accounts and to Notify Outside Firms of Association with a FINRA Member Firm
FINRA's National Adjudicatory Council ("NAC") found that a registered representative had failed to tell his FINRA-registered firm about brokerage accounts that he held at two other firms. Additionally, he failed to tell those two firms that he was associated with a FINRA firm. While he was a registered FINRA representative, he held nine brokerage accounts, some in his name and others in his wife and children's names. He only disclosed partnerships with five accounts to his member firm. NAC found that the representative misled firms when asked if he was associated with a broker-dealer, and also misrepresented his occupation. Additionally, the registered representative submitted certificates of compliance with claims that he had disclosed all outside accounts when he had not. The NAC found that his conduct violated the transactions for or by associated persons and ethical standards rules. He was fined $25,000 and suspended in all capacities for two years.
Failure to Provide Prior Written Notice of Outside Brokerage Accounts
A registered representative failed to give his member firm prior written notice of outside brokerage accounts. He had nine accounts at different firms, some personal, others, trust accounts for relatives, including one inherited IRA account. The representative opened or inherited these accounts before joining the member firm, and one account was a joint account opened with a relative when he joined the firm. The member verbally told the firm of all the accounts, yet failed to provide written notice and details of locations of the accounts until nearly four years later. FINRA concluded his conduct violated the transactions by or for associated persons and ethical standards rules. The representative was censured and fined $10,000.
Improperly Disseminating Violative Advertising and Sales Literature
FINRA settled a matter involving a registered representative who publicly distributed YouTube videos, seminar invitations, and letters about bonus incentives that violated FINRA rules. During a two-year period, the representative failed to get the necessary principal approval before distributing communications. The communications made oversimplified claims that omitted material details or failed to provide a sound basis for evaluating the facts, and contained exaggerated, unwarranted, or misleading statements. Additionally, the representative favorably presented equity index annuities without disclosing their risks and limitations. Furthermore, the representative presented customer testimonials in videos without making the required disclosures, and failed to file with FINRA advertising that discussed registered investment companies within 10 business days of the advertising's first use or publication. FINRA found that the representative violated the ethical standards in communication with the public rules, resulting in a 20-business-day suspension and a $10,000 fine.
Arbitration Award Avoidance
FINRA settled a case involving a registered representative who engaged in unethical conduct related to an arbitration award against him. In April 2012, an arbitration panel issued an award against him in favor of three claimants for more than $550,000. After this, the claimants moved to affirm the award in state court. FINRA rules require that registered representatives to pay arbitration awards within 30 days unless a motion to vacate is filed. In the event that awards are not paid in 30 days, FINRA can suspend the representative's license until the award is paid in full. In this case, the registered representative filed for a motion to vacate, and maintained that it would take several weeks to obtain a transcription of the necessary tape records of the arbitration proceedings. However, FINRA found that the representative never requested the tape recordings and was using court extensions to avoid paying the award without being suspended. In total, the representative used court extensions to avoid being suspended for over six months. FINRA found that the representative violated the ethical standards rule and suspended him in all capacity for 30 days. FINRA did not impose a fine due to the representative filing a Chapter 7 bankruptcy petition.
Impersonating Insurance Policy Holders to Gain Confidential Information
The NAC issued a decision regarding a registered representative who orchestrated four telephone calls with associates who impersonated customers to gain confidential information from their insurance companies. The representative reviewed customers' existing life insurance policies to determine if another one would better serve their needs. He found that some customers held insurance policies issued by an insurance company associated with his firm, but others uses other companies. He recruited two junior sales associates to impersonate the customers on phone calls with the insurance carriers to gain confidential information about the customers and their insurance policies. The NAC found that the representative's conduct violated the ethical standards rule, resulting in an eighteen-month suspension in all capacities, and a $20,000 fine.
Listen to the podcast here.See also: Complete Quarterly Disciplinary Review for July 2013.