FINRA Sanctions Broker for Trading and Recordkeeping Violations
Commentary by Steven Lofchie
FINRA suspended a broker for exercising discretion in customer accounts without written authorization and for using unapproved communication channels to conduct securities business.
According to the AWC, the broker executed more than 250 trades in two customer accounts without written customer authorization or firm approval for discretionary trading. FINRA determined that the broker discussed only general strategies with customers, rather than specific transactions as they occurred.
FINRA also found that the broker used a personal cell phone to exchange securities-related text messages with 27 customers and firm employees while bypassing required supervisory systems. FINRA stated that the broker’s use of unapproved channels caused the firm to fail to capture and preserve required records of communications about securities transactions.
FINRA determined that the broker's conduct violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3260(b) ("Discretionary Accounts") and 4511 ("General Requirements").
To settle the matter, the broker agreed to a 45-calendar-day suspension from associating with any FINRA member in any capacity and a $10,000 fine.
Commentary
There does not seem to be an underlying logic to the amount of fines that FINRA imposes on individuals. This case is not an instance of a broker attempting to steal from a client, nor is there any indication that the clients lost money. The fine amount was $10,000. By contrast, there were two news stories last week that concerned excessive trading by brokers on the accounts of senior citizens. Both were clear instances of theft through brokerage commission, and both involved material customer losses. In one case, one broker was fined $10,000 and another nothing; in the second case, the broker was fined $5,000. The punishments are not fitting the crimes.
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