The SEC brought the first case against a broker-dealer regarding off-channel communications ("OCC") in December 2021. As additional cases were released, the SEC started bringing cases against hybrid entities (both broker-dealers and investment advisers). The SEC brought its first case against a stand-alone investment adviser in April 2024. This matter is the second such case. Similar cases should be expected in the near future.

In this case, the SEC did not impose any financial…

This case is fascinating in a number of respects. First, the Relevant Period for the alleged misconduct begins in January 2015, almost 10 years ago. Second, the end of the Relevant Period is December 2019, nearly 5 years ago. Third, the FINRA Matter Number begins with "2023," suggesting the matter was opened some 3 years after the alleged misconduct ended. Bottom line: the alleged misconduct was ancient at the time the investigation was opened, and even more ancient in September 2024.

Regulators expect financial institutions to use automated surveillance tools, when possible, for (among other things) transactional review as well as money movements. Such tools effectively and efficiently identify individual transactions or trends involving questionable activities, which could be connected to unsuitable transactions, fraud or attempted money-laundering.

In this matter, FINRA found the firm's manual review of transactions deficient, which failed to detect potentially…

FINRA has been reviewing mutual fund switches, and firm supervisory systems relating to switches, for over 25 years. Regulators have stated that mutual fund shareholders must be given sales charge waivers, discounts and fee rebates when they are eligible. This case is a reminder that firms must have robust and up-to-date surveillance tools and procedures to ensure mutual fund shareholders receive appropriate mutual fund recommendations, fee waivers and discounts. FINRA will continue to order…