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Broker-Dealer Settles FINRA Charges for Supervisory Violations on Unsuitable and Excessive Trading

A broker-dealer settled charges for supervisory violations and failing to identify and supervise trading in customer accounts that was excessive and unsuitable. In a related action, FINRA fined and suspended two of the broker-dealer's designated supervisory principals.

FINRA determined that the firm's written policies and procedures failed to provide its branch managers with adequate instructions for the review of customer accounts for suitability and excessive trading. In addition, branch managers failed to conduct required monthly and semi-annual reviews of customer account activity and the firm failed to take reasonable steps to investigate complaints.

As a result, FINRA found that the firm violated NASD Rule 3010 and FINRA Rule 3110 ("Supervision") when it failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with FINRA Rule 2111 ("Suitability"). FINRA found that the broker-dealer also violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a fine of $1,050,000, (iii) restitution of $1,692,256.44 and (iv) revisions to its supervisory systems. As a part of its enforcement action, FINRA fined and suspended the two supervisory principals of the broker-dealer and imposed a $10,000 fine for one principal and a $5,000 fine for the other.

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XI, Number 313
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