Broker-Dealer Settles FINRA Charges on Insufficient Minimum Net Capital

A broker-dealer and settled FINRA charges for failure to maintain the required minimum net capital.

In a Letter of Acceptance, Waiver, and Consent, FINRA stated that the broker-dealer (i) did not make the required notifications to FINRA and the SEC about its net capital deficiencies, (ii) submitted one related notification with material inaccuracies, (iii) kept inaccurate balance sheets, trial balances, general ledgers and net capital computations and (iv) filed inaccurate or late Financial and Operational Combined Uniform Single ("FOCUS") reports.

FINRA concluded that the broker-dealer violated (i) Exchange Act Sections 15(c) ("Registration and regulation of brokers and dealers") and 17(a) ("Records and Reports"), (ii) Exchange Act Rules 15c3-1 ("Net capital requirements for brokers or dealers"), 17a-11 ("Notification provisions for brokers and dealers"), 17a-3 ("Records to be made by certain exchange members, brokers and dealers") and 17a-5 ("Reports to be made by certain brokers and dealers") and (iii) FINRA Rules 4110 ("Capital Compliance"), 2010 ("Standards of Commercial Honor and Principles of Trade") and 4511 ("General Requirements").

In addition, FINRA stated that the owner violated FINRA By-Law Article V Section 2(c) and FINRA Rules 1122 (Filing of Misleading Information as to Membership or Registration") and 2010 by failing to (i) timely amend his Uniform Application for Securities Industry Registration or Transfer (a/k/a "Form U-4") and (ii) disclose two outstanding tax liens of $298,194. FINRA said the broker-dealer and owner also violated FINRA Rule 2010 by using $125,000 worth of withheld employee payroll taxes to cover business expenses instead of remitting the withheld taxes to the Treasury.

To settle the charges, the broker-dealer agree to a (i) censure and (ii) $50,000 fine. The owner agreed to a (i) seven-month suspension from associating with FINRA members in any capacity and (ii) $15,000 fine.