I spent some time reviewing FINRA's disciplinary actions reported for October 2012. I found many of the typical violations by firms and individual reps., but also found a few things that I think are worth highlighting.
Red Flag Failures. Several enforcement actions involved alleged failures by firms to identify and respond to red flags. In one case, a firm was censured, fined $125,000 and ordered to pay restitution totaling $784,847.70. FINRA found that the firm failed to reasonably supervise brokers in connection with their selling away activities. Typically, firms don't know when a broker is selling away - hence the phrase, "Selling away." But here, FINRA found that there were numerous red flags indicating that brokers were selling away and the firm did not act reasonably in responding to the red flags. The AWC submitted by this firm to resolve the matter painfully details the red flags that were not investigated by the firm. AWC 2009017118601.
In another red flag case, a firm was censured and fined $100,000 based on allegations that it failed to supervise a broker and failed to have in place adequate systems and procedures to supervise mutual fund redemptions. It's a long story, but the gist of it is that a broker served as the trustee and broker for a trust and allegedly converted funds from the trust over a number of years. He did so by liquidating mutual funds held by the trust. The broker also repeatedly violated firm procedures, according to FINRA, by failing to submit transaction blotters and correspondence, and the firm knew that the broker's compensation from the firm was very little (as low as $5,600 one year). FINRA found that the firm failed to respond appropriately to the red flags and did not place the account, or the broker, under any heightened supervision, "despite the conflict of interest posed by [the broker's dual roles as broker and trustee]." FINRA also found that the firm failed to maintain appropriate supervisory systems/procedures for review of direct application mutual fund redemptions, among other things. AWC 2009019590503.