Firm Settles FINRA Charges for Net Capital Deficiencies and Reporting Failures

A firm settled FINRA charges for conducting a securities business while failing to maintain required minimum net capital and for filing inaccurate financial reports and notices.

According to the AWC, the firm improperly classified a "reverse repurchase agreement [with its parent] as an allowable asset in its net capital computation" because "the collateral was neither in the firm's possession or control." FINRA found that as a result of this misclassification, the firm overstated its net capital and conducted a securities business while failing to maintain its required minimum net capital.

As a result of the misclassification, FINRA found that the firm maintained inaccurate books and records related to its net capital calculations and filed ten FOCUS reports that overstated its net capital by amounts ranging from approximately $23 million to $25 million. Further, although the firm’s net capital fell below the required minimum on 84 days, the firm failed to file a required net capital deficiency notice with the SEC or FINRA for an extended period.

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

The firm agreed to (i) a censure and (ii) a $50,000 fine.