Broker-Dealer and CEO Fined for Associating with Statutorily Disqualified Individual

A broker-dealer and its CEO settled FINRA charges for associating with an individual who was subject to statutory disqualification and permitting that individual to engage in activities that required registration as a Municipal Securities Representative.

FINRA said that the broker-dealer submitted a Membership Continuance Application to associate with the individual despite the statutory disqualification. The approval was granted with the caveat that the approval would be ineffective until the SEC separately affirmed that it would not pursue an enforcement action against the individual. Despite not yet receiving affirmation from the SEC, the CEO, who was in charge of the broker-dealer's compliance program, provided the individual with access to electronic municipal bonds trading platforms, which the individual subsequently used to recommend investments in municipal securities to customers. FINRA said that the broker-dealer withdrew the application before obtaining final approval from the SEC.

FINRA found the broker-dealer in violation of Article III, Section 3(b) of FINRA's By-Laws ("Ineligibility of Certain Persons for Membership or Association"), FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 8311 ("Effect of a Suspension, Revocation, Cancellation, Bar or Other Disqualification"). The broker-dealer was also found to have violated MSRB Rule G-2 ("Standards of Professional Qualification"), Rule G-3 ("Professional Qualification Requirements"), Rule G-4 ("Statutory Disqualifications") and Rule G-5 ("Disciplinary Actions by Appropriate Regulatory Agencies; Remedial Notices by Registered Securities Associations").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $35,000. The firm's CEO agreed to (i) a five-month suspension from acting in any principal capacity and (ii) a civil monetary penalty of $10,000.