A firm settled FINRA charges for failing to adequately review one of its registered representative's outside business activity ("OBA") disclosures.
In a Letter of Acceptance, Waiver and Consent, FINRA found that the firm failed to evaluate whether the registered representative's reported OBA constituted securities transactions that should have been considered outside securities activity. The registered representative's OBA included the sale of a company involved in "structured cash flow" activities through the purchase of pensions at a discount and the resale of portions of such pensions to investors. The company ceased its business in April 2018 and owed upwards of $300 million to investors in unpaid payments.
FINRA found that the registered representative's firm (i) inappropriately determined that the representative's disclosure of OBA sales of the investment to its customers was related to a previously approved OBA, and (ii) conducted no further investigation or inquiry into the investment product. The registered representative's OBA resulted in a loss of nearly $1.5 million to 20 investors, 19 of which were firm customers. As a result of its findings, FINRA determined that the firm violated FINRA Rules 3270.01 ("Obligations of Member Receiving Notice") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure and (ii) a $20,000 fine.
Primary Sources
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.
