Broker-Dealer Settles Charges for Failing to Supervise Outside Business Activities

A broker-dealer settled FINRA charges for failing to investigate red flags raised by the undisclosed outside business activities of one of its registered representatives.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer failed to investigate red flags related to the representative’s undisclosed outside business activities, and "failed to reasonably supervise transfers of funds to third parties, including a purported investment advisory firm, after which the customers’ funds were converted by a third party." FINRA found that the broker-dealer failed to investigate the representative's unapproved social media activity or properly monitor the representative's work emails, which would have alerted the firm to the representative's outside business activities.

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) a civil monetary penalty of $150,000.