Firm Settles FINRA Charges for Supervisory Failures Over Foreign Associate Activities

A firm settled FINRA charges for supervisory failures related to foreign associates, improper preservation of business communications and permitting an unregistered foreign associate to engage in US securities activities.

According to the AWC, the firm allowed a foreign associate to engage in prohibited activities with US-based entities. (Note: The firm's foreign associates were registered under a now-discontinued FINRA registration category—"foreign associate"—which prohibited them from engaging in any securities activities with US persons or entities). FINRA found one foreign associate improperly facilitated securities transactions between two institutional investors in the US and introduced and exchanged documents between the US parties involved in a private secondary securities transaction. FINRA found that the firm failed to (i) provide reasonable guidance to supervisors on the issue; (ii) adequately monitor foreign associate securities activities; (iii) require that foreign associates complete annual compliance certifications, outside business activity disclosure forms, or written disclosure of private securities transactions; and (iv) reasonably respond to red flags.

FINRA also found that the firm failed to preserve business-related electronic communications sent and received by one of its foreign associates through a personal email account. FINRA said that the foreign associate used the personal account to conduct business, exchanging critical documents such as stock purchase agreements, term sheets and other securities-related materials.

FINRA concluded that the firm violated FINRA Rules 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 4511 ("General Requirements") and 1210 ("Registration Requirements") as well as SEA Section 17(a) and Rule 17a-4(b)(4) ("Records to Be Preserved by Certain Exchange Members, Brokers and Dealers") thereunder.

To settle the charges, the firm agreed to (i) a censure, (ii) a civil monetary penalty of $200,000 and (iii) remediate its supervisory procedures and recordkeeping practices.