An AWC was issued in which the firm was censured and fined $250,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to supervise certain of its registered representatives to ensure their compliance with FINRA rules relating to outside business activities, private securities transactions and outside accounts. The findings stated that that the firm’s WSPs failed to include any procedures about how and to whom employees’ outside business activity requests should be submitted for review and evaluation. Nor did the firm update its WSPs to reflect the requirements of the Supplemental Material of FINRA Rule 3270 that relates to the obligations of member firms receiving an outside business activity notice. In addition, at least one of the firm’s Office of Supervisory Jurisdiction managers did not know the procedure for evaluating or who evaluated outside business activities on the firm’s behalf. The findings also stated that the firm’s WSPs reminded associated persons that it is a serious violation of FINRA rules for a registered representative to sell a security other than through the firm with which they are registered. The WSPs, however, focused only on private securities transactions involving the firm’s customers. The firm’s WSPs did not address private securities transactions not involving the firm’s customers, even though dually registered firm representatives had investment advisory customers who were not also firm customers. The findings also included that the firm’s WSPs failed to address aspects of compliance with NASD Rule 3050, including that a representative must provide written disclosure to the firm prior to opening an outside brokerage account, placing an initial order or promptly after becoming associated with the firm, and must also disclose his or her association with the firm to the outside brokerage firm.
FINRA found that although the firm was aware that a registered representative—who was employed by its affiliated registered investment advisor—was engaging in outside business activities, held outside brokerage accounts through those outside entities, and was engaging in private securities transactions through at least one of those outside entities (an investment fund), the firm did not ensure that he properly disclosed those outside business activities, private securities transactions or outside brokerage accounts. The firm failed to adequately review or evaluate this representative’s outside business activities, failed to supervise the activity in some of the outside brokerage accounts and the private securities transactions, failed to record the private securities transactions on the firm’s books and records, and failed to identify and follow up on items that should have warranted further scrutiny of the representative’s activities. The representative engaged in extensive outside business activities through the investment fund, but he did not provide the firm adequate written notice of the investment fund. The representative also failed to list the investment fund as an outside business activity on his Uniform Application for Securities Industry Registration or Transfer (Form U4). (FINRA Case #2014043089901)