The AML compliance program failings in this case are significant. Over a four-year period, the firm did not fully "know" its legal entity customers, and in particular the beneficial owners of these legal entities. Without fully knowing these legal entity customers, the firm could not properly assess whether transactions conducted, and the financial activities engaged in, by these customers were consistent with their risk profiles. This could allow these customers' activities to escape…

FINRA continues to bring cases in the preferred stock space. What is lamentable about this matter is the age of the alleged misconduct. The relevant period is from January 2017 to December 2018—in other words, the end of the relevant period was nearly six years ago. In 2000, the SEC held, in the Hayden case (an appeal from a New York Stock Exchange disciplinary decision), that fundamental fairness dictated that the matter be dismissed due to the NYSE's delay in bringing the case. In…

Regulators continue to evaluate sales practices and other sales behavior for Regulation BI conformity. In this case, the firm did not have adequate systems to identify excessive trading, and did not account for the annual turnover or cost-to-equity ratios for activity in certain accounts. Nor did not the firm have appropriate systems in place to monitor the holding periods for certain exchange-traded products. Both of these areas have been under significant regulatory scrutiny for over a…

This matter is a continuation of the SEC's share class initiative, albeit in a different type of account. The SEC brought its first share class cases in 2017 against a registered investment adviser ("RIA") and its affiliated broker-dealer ("BD"). The crux of that and subsequent cases is that the RIA, by recommending share classes with 12b-1 fees that were paid to the affiliated BD, violated its fiduciary duty and duty of best execution. This is because cheaper share classes of the same funds…