FINRA suspended and fined a broker-dealer, and barred from associating with any FINRA member firm the CEO of the broker-dealer's parent corporation, for engaging in fraudulent activity in the sales of securities to prospective investors.

FINRA found that CSSC Brokerage Services, Inc. ("CSSC") and Eric S. Smith (collectively, the "Respondents") made material misstatements and omissions in connection with an offering of securities.

FINRA also found that Mr. Smith, the majority owner of the firm and the CEO of the firm's parent company, engaged in the direct management of CSSC's securities business without being properly registered as a principal. FINRA concluded that by ordering the payment of CSSC's expenses, hiring its representatives and managers, and supervising certain representatives, Mr. Smith "exercised control and management" of CSSC, and effectively acted in the role of a principal to the broker-dealer.

As a result of the misconduct, FINRA ordered Mr. Smith to be barred from associating with any FINRA member firm in any capacity. Separately, CSSC is suspended for one year and must pay a monetary penalty of $120,000. Further, FINRA ordered the Respondents to pay roughly $12,000 for the proceeding.

Commentary / Steven Lofchie

The FINRA disciplinary action against the firm's owner is a reminder that a supervisor cannot insulate himself from liability by failing to register.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.