More on Recent FINRA Enforcement Cases - Supervision and Conversion of Funds

I posted yesterday about my review of FINRA's January published disciplinary actions and the quarterly review of actions.  Two more cases there caught my eye. 

Supervision.  The first one involved a former principal in Arizona.  He was suspended as a principal for one year and fined $15,000 after FINRA found that he failed to properly supervise a broker  and to review trades for suitability.  FINRA explains that the broker made unsuitable recommendations in inverse floaters to public customers who were inexperienced investors with conservative investment objectives.  As a result of the unsuitable recommendations, the customers lost millions of dollars, FINRA says.  (FINRA Case No. 2006005546006).  From the case number beginning with 2006, we know that the exam that led to this action was initiated in 2006, so the conduct is not very recent.  But, especially given the current economic times, supervisors should take note of this. 

Whenever a broker or customer wants to use non-traditional investments, supervision must be stepped up.  Supervisors must be diligent to ensure that any recommendations by the broker are suitable, that the customer is informed about the risks involved and reasonably understands them.  When investors want to trade in securities not suited for them, perhaps its time to fire the client or to, at the least, document that the firm and brokers are not making such recommendations.  Remember, not only are there regulatory ramifications for failing to supervise, but investors often point to deficient supervision in their arbitration claims as well.

Conversion.  The quarterly summary highlighted a conversion case that is just pathetic.  Here's what it says:

FINRA settled a matter that involved a registered representative who
misappropriated $50 from a customer. The customer had earned a
$50 credit by referring two new customers to the representative’s
employer bank. The representative obtained the $50 from the bank
but never deposited the funds into the customer’s account. Instead,
the representative kept the money for himself.
FINRA concluded that this conduct violated NASD Rule 2110 (ethical

standards) and, as a result, barred the representative in all capacities.

What was this dude thinking?  As a former enforcement lawyer, I've handled my share of conversion cases, some large, some small, and some with some pretty complicated cover-ups, but I've never seen one for just $50.  Wow.