Broker-Dealer Fined for Net Capital Deficiencies
A broker-dealer settled FINRA charges for conducting a securities business while failing to maintain the required minimum net capital and failing to file timely 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, between May 2020 and March 2021 and also between May and October of 2021, the broker-dealer (i) fell below the minimum net capital requirement, (ii) failed to timely file with the SEC and FINRA notices of its capital deficiencies and (iii) filed inaccurate Financial and Operational Combined Uniform Single ("FOCUS") reports.
FINRA said that the broker-dealer received an Economic Injury Disaster Loan ("EIDL") that it did not include when calculating its aggregate indebtedness. As a result, FINRA determined that the firm fell below its minimum capital requirement. Separately, FINRA found that the broker-dealer effected 11 sales of stock warrants for its own investment account, which then required it to either increase its net capital pursuant to Exchange Act Rules or cease conducting its securities business. FINRA found that the broker-dealer did neither. FINRA also found that the broker-dealer failed to maintain records with accurate computations of its aggregate indebtedness and net capital, and failed to file the required notices and FOCUS reports.
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"). FINRA also found that the broker-dealer 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 and (ii) a $10,000 fine. FINRA imposed a lower fine after considering the firm's revenues and financial resources.