Broker-Dealer Settles FINRA Charges for Disclosure and Reporting Failures

A broker-dealer agreed to pay $250,000, as well as to a censure, to settle various FINRA reporting violations, including failing to disclose its sales compensation on preferred securities transactions to customers.

As described in a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer failed to:

• inform customers of $7.5 million in sales compensation regarding 11,500 preferred securities transactions effected in customers' accounts;

• disclose the use of average prices on trade confirmations sent to customers;

• execute marketable limit orders placed by telephone in a timely manner;

• submit required data to FINRA's Order Audit Trail System (or "OATS");

• record order receipt time in the correct format; and

• create and preserve order memoranda.

Additionally, FINRA alleged that the broker-dealer did not enact and maintain a sufficient supervisory system or written procedures reasonably designed to achieve compliance with securities regulations governing the recording of order times and the disclosure of compensation. As a result of its conduct, FINRA alleged, the broker-dealer violated various securities regulations, including:

• SEA Rule 10b-10 ("Confirmation of Transactions");

• SEA Rule 17a-3 ("Reports to Be Made by Certain Exchange Members, Brokers and Dealers");

• FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade");

• FINRA Rule 2232 ("Customer Confirmations");

• FINRA Rule 3110 ("Supervision");

• FINRA Rule 4511 ("General Requirements");

• FINRA Rule 5310 ("Best Execution and Interpositioning");

• FINRA Rules 7230A ("Trade Report Input") and 7330 ("Trade Report Input"); and

• FINRA Rules 7440 ("Recording of Order Information") and 7450 ("Order Data Transmission Requirements").