A registered broker-dealer agreed to pay a total of $2.8 million in order to settle FINRA and SEC charges related to alleged violations of the Custody Rule (Exchange Act Rule 15c3-3) and the Net Capital Rule (Exchange Act Rule 15c3-1).
FINRA found that Wedbush Securities Inc. ("Wedbush") violated the Net Capital Rule by failing to deduct certain positions in certificates of deposit, with no ready market from its net capital calculations.
As to the Custody Rule, FINRA found that the firm had committed a number of different types of violations, including improperly using securities that should have been segregated to make returns of borrowed securities, failing to take account of the cash amount of loans secured by customers' securities in the reserve formula, failing to take account of securities delivered to the Options Clearing Corporation as collateral in the reserve formula, and including assets in its reserve account that were not appropriate for such purpose.
Without admitting or denying the allegations, Wedbush agreed to pay $1.5 million to settle the FINRA charges and an additional $1.3 million to settle the SEC charges.
Commentary / Steven Lofchie
The custody rule is arguably the single most important regulation governing broker-dealers. Both the SEC and FINRA are rightfully focused upon it. Firms should review the various infractions cited in the enforcement action and determine that none of these is applicable to them. Beyond that, the regular audit of their custody functions is one that firms should take very seriously. The regulators will. And it is good public policy.
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