Broker-Dealer Settles Charges for Failing to Supervise Representative over Unsuitable and Unauthorized Trading

A broker-dealer settled FINRA charges for failing to supervise a registered representative that engaged in unsuitable and unauthorized trading in a customer's account.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer failed to investigate the registered representative's misconduct regarding trading of structured notes in a customer's account. FINRA found that the broker-dealer was aware of the trades executed by the representative, but did not investigate. FINRA stated that the firm did not designate the representative as requiring additional supervision even after the broker-dealer restricted the purchase of structured notes in the customer's account.

Further, FINRA found that the broker-dealer failed to identify unauthorized trades executed in the customer's account. FINRA said that the representative created false contact information for the customer to gain access to the customer's account and then forwarded all correspondences relating to that account to the false account. FINRA stated that the broker-dealer did not confirm that the customer opted to switch to electronic delivery of account related documents, again failing to reasonably supervise the representative's actions.

As a result, FINRA determined that the broker-dealer 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 and (ii) pay a $200,000 civil monetary penalty. The representative settled the unsuitable and unauthorized trading charges in a separate instance.