Two recent FINRA enforcement cases stand out, and are worthy of our discussion.
First, according to a FINRA press release, a Hearing Panel fined Mutual Service Corp. more than $1.5 Million for supervisory violations and falsifying documents relating to exchanges of variable annuities. The regulators also announced that six current or former employees of the firm were disciplined. Three of those folks were barred from the securities industry in the action for falsification of records that showed that certain annuity transactions had been reviewed by the compliance department when they had not. Moreover, one compliance employee allegedly created fake letters and put them in the firm's files to make it appear that the firm had utilized an exception report to review certain transactions. According to the press release, "The hearing panel found that [the firm and the three individuals] intentionally falsified [the firm's] records to deceive FINRA's staff and termed those violations "egregious."" Go read this press release for yourself. Unfortunately the panel's decision is not yet on FINRA's website, and my request to FINRA for a copy has not been honored. Note that some of the individuals have appealed the decision to FINRA's National Adjudicatory Council, and the NAC has also called another one for review, so the case is not yet final. I think you can pick up some of the lessons to be learned here, but if not, remember this: don't stop supervising transactions, don't falsify documents.
Second, FINRA announced that is fined a supervisor $10,000 and suspended him in all capacities for 10 business days and in principal/supervisory capacities for 90 days based on findings that he failed to follow up on "red flags" indicating possible misconduct by a broker. Specifically, the supervisor allegedly failed to investigate why many of a broker's accounts had sell-outs in them, and why some new accounts failed to pay for securities that had increased in value. FINRA also found that the supervisor failed to enforce and follow a heightened supervision agreement for this broker as well. See FINRA's report of disciplinary actions for March 2009 (case No. 2005001502703). I also think that the lessons to be learned here are obvious, but if not, remember this: if someone is on heightened supervision, there's probably a reason for that, so follow the plan.
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