Firm Settles FINRA Charges for Net Capital Violations

A firm settled FINRA charges for failing to maintain its minimum required net capital and for filing inaccurate financial reports.

FINRA found that the firm conducted business "under its minimum net capital requirement of $100,000 on 35 days" over a nine-month period in 2022. FINRA highlighted that the firm incurred net capital deficiencies on three occasions—ranging from $221,180 to $354,150 due to a miscalculation of "its aggregate indebtedness and net capital;" from $76,849 to $147,296 due to misstated allowable assets and understated liabilities; and from $10,871 to $216,266 after an employee transferred $4,872,000 to the firm's parent company.

FINRA also found that the firm maintained "inaccurate books and records" due to misstatements of "allowable assets and liabilities," which led to an overstatement of its net capital. FINRA said the firm inaccurately reported "financial information" on "eight monthly FOCUS reports," with net capital overstated by amounts ranging from $38,965 to $1,020,734.

Further, FINRA determined that the firm's supervisory system was inadequate for ensuring compliance with net capital rules, as it assigned the Financial and Operations Principal responsibility for calculating and reporting net capital without providing written guidance, and for supervising equity capital transactions without implementing limitations on transfers. 

As a result, FINRA determined that the firm violated SEA Rules 15c3-1 ("Net capital requirements for brokers or 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"). The firm also violated FINRA Rules 4110 ("Capital Compliance"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 4511 ("General Requirements") and 3110 ("Supervision").

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $75,000 fine.