Firm Settles FINRA Charges for Flawed Cost Basis Information

A firm settled FINRA charges for negligently misrepresenting cost basis information on numerous Forms 1099 and customer account statements.

In a Letter of Acceptance, Waiver and Consent, FINRA alleged that the firm's personnel lacked an adequate understanding of how to comply with regulations in connection with post-settlement cost basis changes, resulting in "improper post-settlement cost basis changes" on the Forms 1099. FINRA also stated that the firm's system for manually tracking changes to cost basis did not include fundamental information, such as the reason for a cost basis change. FINRA found that because of the system's shortcomings and firm personnel's lack of knowledge, the firm issued more than a thousand Forms 1099 and customer account statements with negligent misrepresentations of cost basis information.

As a result of its findings, FINRA determined that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 4511 ("General Requirements").

To settle the charges, the firm agreed to (i) a censure, (ii) a $525,000 fine and (iii) an undertaking to hire an independent consultant to conduct a thorough review of the firm's procedures for tracking and reporting updates and modifications to cost basis information.