finra fines

Broker Dealer & Firms Fined By FINRA in December 2018

CIM Securities, LLC (CRD® #120852, Centennial, Colorado) October 3, 2018 – A Letter of Acceptance, Waiver and Consent (AWC) was given out in which the company was criticized and penalized $15,000. Without confessing or refuting the findings, the company agreed to the claims as well as to the entry of findings that it failed to comply with its obligations to review, consent, record, and monitor private securities transactions by three of its registered representatives. The findings stated that the firm approved an outside business activity of the representatives to engage in private securities transactions for compensation through that outside business activity. The representatives recommended the investment to certain of their retail customers and sold interests in a limited liability company totaling approximately $2,500,000, and then invested those funds in a separate offering for which they received selling compensation in the form of commissions paid to the agents of the firm. The company was aware that the agents might get additional payment in the form of expense compensation, future earnings and an ownership interest in the LLC. However, the firm failed to supervise and maintain on its books and records the private securities transactions engaged in by the representatives. (FINRA Case #2017052070001)

UBS Financial Services Inc. (CRD #8174, Weehawken, New Jersey) October 5, 2018 – An AWC was issued in which the firm was censured and fined $50,000. Without confessing or refuting the claims, the company agreed to the claims and to the entry of findings that it failed to report to the Trade Reporting and Compliance Engine® (TRACE®) transactions in TRACE-Eligible Agency Debt Securities and in TRACE-Eligible Securitized Products within the time allowed under FINRA Rule 6730(a). (FINRA Case #2016050912401)

Lenox Financial Services, Inc. (CRD #36379, New Lenox, Illinois) October 18, 2018 – An AWC was issued in which the firm was censured and fined $15,000. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to make required financial interest and beneficial ownership disclosures in research reports. The findings stated that the firm published initial research reports that included a generic disclaimer that used conditional and indefinite language that failed to identify its principal’s actual financial interest, or the nature of his actual financial interest, in the subject companies. The firm also provided updates to the initial research reports prepared by the FINRA has taken disciplinary actions against the following firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board (MSRB). Reported for December 20182 Disciplinary and Other FINRA Actions principal for clients invested in the subject companies, but failed to treat the updates as research reports and did not include any disclosures regarding the principal’s financial interest in the company in those updated research reports. The findings also stated that the firm failed to disclose in research reports that it was affiliated with an investment advisor that was considered an indirect beneficial owner of the equity securities owned by clients in investment advisory accounts at the firm. The findings also included that the firm failed to prevent the principal from effecting purchases in research analyst accounts of securities of companies that were the subject of his research reports. FINRA® found that the firm failed to establish a system reasonably designed to achieve compliance with the research analyst’s financial interest and beneficial ownership disclosure requirements. In addition, the firm failed to establish a supervisory system reasonably designed to achieve compliance with personal trading restrictions. (FINRA Case #2016047929401)

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MBSC Securities Corporation (CRD #231, New York, New York)October 18, 2018 – An AWC was issued in which the firm was censured and ordered to pay $971,289.07, plus interest of $242,955.64, in restitution to customers. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and Written Supervisory Procedures (WSPs) reasonably designed to monitor the transmittal of funds from customer accounts to third parties. The findings stated that third-party advisors routinely submitted requests for the payment of fees, which exceeded the amounts to which they were entitled under existing management agreements and fee schedules, and that the company approved those requests without reviewing or verifying. As a result, the firm disbursed $971,289.07 from customer accounts to the advisors that exceeded the fees permitted under the management agreements. The firm had no procedures for the review of instructions, including standing instructions and standing letters of authorization, from investment advisors or other third parties purporting to act on behalf of customers, and the firm did not test and verify its procedures relating to the transmittal of funds from customers to third-party accounts. As a result, the company could not identify patterns of misconduct involving improper or excessive transfers of funds to third parties. (FINRA Case #2017054119401)

Morgan Stanley & Co. LLC (CRD #8209, New York, New York) October 18, 2018 – An AWC was issued in which the firm was censured and fined a total of $56,000, of which $8,000 is payable to FINRA. Without confessing or refuting the findings, the firm consented to the sanctions and to the entry of findings that it failed to take appropriate steps to ascertain the intermarket sweep orders (ISOs) it had routed met the definitional prerequisites set forth in the Securities Exchange Act of 1934 Rule 600(b) (30) of Regulation NMS primarily due to systems issues. The findings stated that because of the systems issues, the company dispeled ISOs to numerous markets, which potentially traded through protected quotations in NMS stocks. The findings also stated that the firm failed to establish, maintain and enforce supervisory systems and written procedures reasonably Disciplinary and

Other FINRA Actions 3hscsŽ‘slDNRIA designed to prevent trade-through of protected quotations in NMS stocks that do not fall within an applicable exception and otherwise to achieve compliance with respect to applicable securities laws and regulations concerning Securities Exchange Act Rule 611(c) of Regulation NMS. Among other things, the firm’s ISO surveillance report failed to take into account whether the order was executed or cancelled. (FINRA Case #2014043099103)

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Maxim Group LLC (CRD #120708, New York, New York)October 19, 2018 – An AWC was issued in which the company was condemned, charged $65,000, instructed to give $167,780.49 along with the interest as reimbursement to its clients. It was also instructed to review its system, rules, regulations, and guidance with respect to the sale of Unit Investment Trusts (UITs). Without denying or admitting the claims, the firm agreed to the penalties and to the entry of findings that it failed to establish and maintain a supervisory system, and establish, maintain and enforce WSPs, reasonably designed to detect and prevent unsuitable short-term trading in UITs. The findings stated that the firm had no procedures to address the suitability concerns raised by short-term trading in UITs. The company also did not have any supervision or exemption reports designed to perceive inappropriate short-term trading of UITs and did not provide supervisors or brokers any training on UITs. Several firm representatives recommended and effected short-term trades of UITs in their customers’ accounts. These representatives repeatedly recommended that their customers sell their UIT positions less than one year after purchase. In addition, on several occasions, these representatives recommended that their clients use the profits from the short-term sale of a UIT to buy additional UIT with similar investment purpose. Because of this trading, clients paid additional sales price, which amounted to be roughly $167,780.49. (FINRA Case #2016047630702)

Avalon Investment & Securities Group, Inc. (CRD #6281, Muscle Shoals, Alabama) October 25, 2018 – An AWC was issued in which the firm was censured, fined $12,000, ordered to pay $1,515, plus interest, in restitution to customers and required to retain an independent consultant to conduct a comprehensive review of the adequacy of the firm’s policies, systems and procedures (written and otherwise) and training relating to the violations identified in the AWC. A lower fine was pressed after taking into account the company’s earnings and financial resources. Without confessing or refuting the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and WSPs rationally planned to guarantee that its enlisted representatives’ suggestions of variable annuities complied with applicable securities laws and regulations, and FINRA rules. The findings stated that the firm incorrectly believed it had limited responsibility for supervising the sales of variable allowance for aptness because it did not hold the allowance directly. In addition, the firm failed to implement any surveillance system to determine if its representatives had rates of variable annuity exchanges that rose for review whether such rates of exchange may be inappropriate. The findings also stated that the firm failed to establish, maintain 4 Disciplinary and Other FINRA Actions and enforce a supervisory system and WSPs reasonably designed to ensure suitability of its representatives’ recommendation of mutual fund share classes and the proper application of mutual fund sales breakpoint levels. A review of 11 household account files revealed that two household accounts were not given the appropriate sales breakpoint, totaling $1,515.00, for their mutual fund investments. The findings also included that the firm failed to properly register a location as an Office of Supervisory Jurisdiction (OSJ) and nine locations as branch offices. (FINRA Case #2016047823901)

Investment Placement Group (CRD #14458, San Diego, California) October 26, 2018 – An AWC was issued in which the firm was censured and fined $10,000. Without confessing or refuting the findings, the company agreed to the claims and to the entry of findings that it made payments of approximately $3.85 million in commissions earned by registered representatives to unregistered entities instead of directly to the representatives. The findings stated that each representative was a co-owner of the entity to which the company gave the commissions. (FINRA Case #2013039590801)

Ascensus Financial Services, LLC. (CRD #147257, Dresher, Pennsylvania) October 31, 2018 – An AWC was given out in which the company was condemned and charged $35,000. Without confessing or refuting the findings, the company agreed to the punishment and to the admission of findings that it carried out a securities trade while failing to meet its net capital requirements. The findings stated that by not including the full value of 12b-1 fees the firm collected (and held as a receivable), it understated its non-allowable assets and, as a result, operated with a net capital deficiency of between $1.1 million and $2.5 million. The findings also stated that as a result of failing to properly including the full value of 12b-1 fees, the firm prepared and maintained an inaccurate general ledger and filed inaccurate quarterly Financial and Operational Combined Uniform Single (FOCUS) reports. (FINRA Case #2017052209901)

Firms SanctionedJ.P. Morgan Securities LLC (CRD #79, New York, New York) October 18, 2018 – An AWC was issued in which the firm was censured and required to certify in writing to FINRA that it has engaged in a risk-based review of a client-facing third-party vendors and has corrected any issues detected and established and implemented systems, policies and procedures (written or otherwise) that are reasonably designed to attain compliance with the NASD and FINRA rules. The firm paid total restitution of $4,620,140 to impacted customers. Based on several factors, FINRA has determined not to impose a monetary sanction in this matter. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish and maintain a system and procedures reasonably designed to monitor and evaluate the performance of the vendor that handled on the firm’s behalf the Disciplinary and Other FINRA Actions automated realignment of portfolio assets in certain customer accounts invested in mutual funds to the model selected by the customer, and the calculation of fees charged to wealth management customers. The findings stated that the firm discovered that the vendor was not rebalancing certain accounts and that upgrades by the vendor caused accounts to not be rebalanced at the appropriate time. Similarly, the vendor converted to a new billing platform, and because the firm neither conducted testing after technology changes nor had any other supervisory measures in place, numerous billing blunders went unnoticed. Because the firm failed to monitor how its vendor calculated these fees and rebates, approximately $3.1 million as fees were charged in more than 150,000 accounts. (FINRA Case #2017053493101)

D.A. Davidson & Co. (CRD #199, Great Falls, Montana) October 30, 2018 – An AWC was issued in which the firm was censured and required to provide FINRA with a idea to remediate suitable clients who qualified but did not get the appropriate mutual fund sales-charge waiver. As part of this arrangement, the company agreed to give reimbursement to suitable clients, which is expected to total $447,000 (i.e., the money qualified clients were overcharged including the interest). Without confessing or refuting the findings, the company agreed to the claims and to the discovery that it took advantage of certain retirement plans and charitable association clients that were entitled to buy Class A shares in specific mutual funds without a front-end sales charge. It was found that these qualified clients were instead sold Class A shares with a front-end sales charge, or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. These sales deprived qualified clients by causing them to pay higher fees than they were actually required to pay. The findings also stated that the firm failed to supervise the application of sales-charge waivers to eligible mutual fund sales. The firm relied on its financial advisors to determine the applicability of sales-charge waivers, but failed to maintain adequate written policies or procedures to assist financial advisors in making this determination. In addition, the company was unable to properly inform and train its investment agents regarding the availability of mutual fund sales-charge waivers for qualified clients. The company was unable to take on sufficient controls to detect instances in which they did not provide sales-charge waivers to suitable clients in connection with their mutual fund purchases. As a result, the firm estimates that eligible customers were overcharged by approximately $384,214 for mutual fund purchases made since January 1, 2011. (FINRA Case #2016050260301

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