Broker-Dealer Settles FINRA Charges for Supervision Failures Related to Outside Business Activities

A broker-dealer settled FINRA charges for failing to timely review a request to engage in an outside business activity ("OBA") involving the sale of a security.

In a Letter of Acceptance, Waiver, and Consent, FINRA said that the representative informed the broker-dealer that he intended to begin the OBA in July of 2013, but the broker-dealer failed to timely respond to the representative's request for approval. According to FINRA, the broker-dealer denied the request, but not until seven months had passed. In addition, FINRA stated that the broker-dealer failed to communicate the denial to the representative. FINRA noted that, had the broker-dealer conducted adequate supervision of the representative, it would have learned that the representative was using firm resources to sell the OBA security to broker-dealer customers without an authorization from the firm. FINRA found that the representative sold over $7 million in securities to 39 investors, including 16 firm customers.

To settle the charges for violating NASD Rule 3010 and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"), the broker-dealer agreed to (i) a censure and (ii) a $180,000 fine.