Broker-Dealer Penalized for Material Omissions in Customer Statements
Commentary by Steven Lofchie
A broker-dealer settled FINRA charges for disclosure failures on consolidated statements sent to customers.
In a Letter of Acceptance, Waiver and Consent, FINRA said that the broker-dealer disseminated consolidated statements to customers that failed to disclose material information including that the report "may include assets that the firm does not hold on behalf of the customer; the names of the entities providing the source data or holding the assets, their relationship with each other, and their respective functions; or a statement clearly distinguishing between assets held by each
entity."
FINRA found that the broker-dealer failed to ensure proper supervision of the consolidated reports and to keep copies of the consolidated reports that were sent to customers. As a result, FINRA found that the broker-dealer violated (i) FINRA Rules 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 2210 ("Communications with the Public") and 4511 ("General Requirements"); (ii) NASD Rule 3010; and (iii) Exchange Act Section 17(a) ("Records and Reports") and Rule 17a-4 ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers").
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) pay a $50,000 fine.
Commentary
Broker-dealers that send consolidated statements to their customers should review the disclosures on these statements to see whether they are reasonably consistent with FINRA's guidance. Firms should also be mindful that sending a consolidated statement does not satisfy the requirement to send a broker-dealer standalone statement.