Broker-Dealer Settles Charges for Net Capital Calculation Deficiencies
A broker-dealer settled FINRA charges for conducting a securities business while failing to maintain the required minimum net capital and failing to timely file notices of net capital deficiency with the SEC and FINRA. The broker-dealer was also charged with related recordkeeping and supervisory violations.
According to FINRA, the broker-dealer fell below the minimum net capital requirement on four separate occasions: twice because it included a non-allowable asset in its net capital calculation; once because it failed to take a deduction for non-marketable shares of a company when the firm's holding of a stock exceeded the number of shares of that stock that could be readily liquidated in the market; and once because it did not include certain obligations under a lease agreement in its calculations. FINRA said the broker-dealer failed to provide timely notice of the net capital deficiencies, and when notice was finally provided, the broker-dealer only mentioned deficiencies caused by the inclusion of a non-allowable asset. FINRA found that as a result of the deficiencies, the broker-dealer filed multiple quarterly reports containing inaccurate net capital data.
In addition, FINRA found that the broker-dealer failed to conduct due diligence prior to recommending investments in private placement offerings to customers, instead relying on documentation provided by the issuer. FINRA said that the broker-dealer's records also reflected that the broker-dealer did not conduct any analysis of issuer-provided documents.
FINRA determined that the broker-dealer violated SEA Section 15 ("Registration and Regulation of Brokers and Dealers"), SEA Section 17 ("Records and Reports"), SEA Rule 15c3-1 ("Net Capital Requirements for Brokers or Dealers"), SEA Rule 17a-3 ("Records to be Made by Certain Exchange Members, Brokers and Dealers"), SEA Rule 17a-5 ("Reports to be Made by Certain Brokers and Dealers") and SEA Rule 17a-11 ("Notification Provisions for Brokers and Dealers"). The broker-dealer was also found to have violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision"), 4110 ("Capital Compliance") and 4511 ("General Requirements").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $200,000 and (iii) undertakings to improve the deficiencies identified in the enforcement.