Brokerage Firm Settles FINRA Charges for Deficient Supervision over Reg. M Compliance

A broker-dealer settled FINRA charges for failing to establish and maintain supervisory practices regarding trading during the restricted period of a public offering.

The supervisory failures concerned compliance with Regulation M ("Preventing manipulation by individuals with an interest in the outcome of an offering"), Rule 101 ("Activities by distribution participants").

FINRA found that (i) the firm failed to notify relevant personnel and offices that the firm was participating in a distribution subject to Regulation M; (ii) the firm's written policies failed to identify any supervisor responsible for Rule 101 compliance; (iii) the firm failed to outline how it would identify improper trading; (iv) the firm did not distribute a restricted securities list to its various branches; and (v) the firm did not conduct reviews of trading activity.

As a result, FINRA found that the firm violated:

• FINRA Rule 3110 ("Supervision"); and

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

To settle the charges, the broker-dealer agreed to (i) a censure; (ii) a fine of $75,000, of which $37,500 will be paid to FINRA; (iii) a total disgorgement of $50,000, of which $25,000 will be paid to FINRA; and (iv) an undertaking to review and revise the firm's supervisory system. The remainder of the penalty and disgorgement amounts will be paid out to Nasdaq Stock Market LLC.