Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2010
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
July 2010
E*Trade Clearing LLC
AWC/2007009471101/July 2010

E*Trade introduced several new money market sweep funds and, when entering certain back-office processing instructions relating to some of the funds, the firm made an error that resulted in the system failing to recognize these fund positions and customers being erroneously charged margin interest for that day. When the firm became aware of this coding error and corrected the problem, it did not identify or reimburse affected customers until later in the year; the firm reimbursed affected customers a total of $43,938.57 in erroneous margin interest charges several months later.

The Firm acquired customer accounts through conversions from other firms, and it erroneously charged margin interest to conversion customers who traded options.

The Firm failed to designate an employee to review, reconcile and resolve fractional share differences between its Depository Trust Company (DTC) position and the actual quantity of securities on deposit at the DTC.

The Firmís systems failed to accept delivery instructions if customers had pending dividends or unsettled positions in their accounts.

FINRA also found that the firm failed to establish a system reasonably designed to supervise and written procedures reasonably designed to prevent and/or correct erroneous margin interest accruals in customer accounts holding certain money market sweep funds, prevent and/or correct erroneous margin interest charges to converting customers who traded options at the time of the conversion and had available cash in their accounts, ensure the review and reconciliation of fractional share differences with the DTC, and ensure the prompt transfer of physical certificates to customers. In addition, the Firm failed to accurately mail account statements to customers, liquidated fractional shares in customer accounts without their authorization and failed to report customer complaints in an accurate and timely manner.

Moreover, in connection with its conversion to a new back office system, a functionality that impacted the segregation of long positions in suspense accounts was not activated as required and, as a result, the firmís possession and control system failed to issue segregation instructions on long positions in suspense accounts.

E*Trade Clearing LLC: Censured; Fined $350,000
Tags:  Margin    Delivery Instructions         |    In: Cases of Note : FINRA
Bill Singer's Comment
See this May 2010 article: E*Trade Baby Craps. Transfer Requests Lost. http://www.brokeandbroker.com/index.php?a=blog&id=394
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