Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
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.
August 2011
Trustmont Financial Group, Inc. and Peter Daniel Dochinez (Principal)
AWC/2009016311801/August 2011

The Firm failed to develop and enforce written procedures reasonably designed to achieve compliance with NASDģ Rule 3010(d)(2) regarding the review of electronic correspondence. Although the firm had certain relevant procedures in place, it did not have a satisfactory system for providing designated principals with access to such correspondence for review; instead, the firm relied on registered representatives to forward any emails involving customers to a central email address, which was accessible to the firmís president and chief compliance officer (CCO), for review.

The firm did not have effective procedures to monitor its representativesí compliance with the email forwarding requirement; instead the firm relied on branch inspections to monitor compliance, but, because the firmís branch offices were non-Office of Supervisory Jurisdictionís (OSJs), they were inspected infrequentlyóonce every three years.

During the infrequent branch office inspections, the firm generally failed to conduct adequate reviews of representativesí personal computers to determine if they were complying with the email forwarding requirement; other than some very limited reviews during the inspections, the firm failed to provide for surveillance and follow-up to ensure that email correspondence review procedures were implemented and adhered to.

The firm failed to enforce its written procedures requiring a designated principal to conduct a daily review of business-related electronic correspondence and to evidence that review by initialing the correspondence.

Acting through Dochinez, the firmís president, chief executive officer (CEO) and a firm principal, failed to establish, maintain and enforce an adequate system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm, its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where the need was identified by such testing and verification. In addition, The firmís supervisory control policies and procedures failed to address the requirements of designating a principal responsible for the firmís supervisory control policies and procedures; testing and verification to ensure reasonably-designed supervisory procedures; updating the firmís written supervisory procedures (WSPs) to address deficiencies noted during testing; designating a principal responsible for the annual report to senior management on the firmís system of supervisory controls procedures, summary of test results, significant identified exceptions, and any additional or amended procedures; identifying producing managers and assigning qualified principals to supervise such managers; using the ďlimited size and resourcesĒ exception for producing managersí supervision, including documenting the factors relied on in determining that the exception is necessary; electronically notifying FINRA of its reliance on the limited size and resources exception; reviewing and monitoring all transmittals of customer funds and securities; reviewing, monitoring and validating customer changes of address and customer changes of investment objectives; and providing heightened supervision over each producing managerís activities. Moreover,acting through Dochinez, the firm failed to conduct independent tests of its AMLCP.

Trustmont Financial Group, Inc.: Censured; Fined $10,000 joint/several; Fined additional $20,000

Peter Daniel Dochinez: Censured; Fined $10,000 joint/several

Tags:  Electronic Communications    Email    Inspections    OSJ     |    In: Cases of Note : FINRA
Bill Singer's Comment
A growing area of focus for FINRA is the diligence of a member's policies/procedures for reviewing electronic communications -- and if you're relying upon the honor system, the regulator is just not going to be happy. 
January 2011
Torrey Pines Securities, Inc. and NAME REDACTED (Principal)
AWC/2007011125103/January 2011

Acting on the firmís behalf, NAME REDACTED 

  • failed to ensure that a firm principal completed his annual certification as the firmís procedure required,
  • did not follow up on the principalís failure to provide information regarding both his outside business activities and the accounts for which he served as a custodian or trustee, and
  • conducted an inspection of a firm branch office, and that inspection did not comport with the firmís written procedures and did not reasonably review the activities of that office.

NAME REDACTED did not review the transmittal of funds between the principalís customers and a third party as the firmís written supervisory procedures required, and failed to obtain details regarding the principalís outside business activities.

The firm failed to

  • reasonably supervise the principal by failing to take steps to inquire into ďred flagsĒ  indicating his possible misconduct;
  • follow up on the principal's outside business activities and excessive absences from the firm;
  • timely investigate allegations that he was participating in private securities transactions away from the firm; and when the firm confirmed his selling away activities, it did not take any steps to place him on heightened supervision.

The Firm's written supervisory procedures were not reasonably designed to ensure principal review of wires from customers to third parties, so it was unaware the principalís customers were transferring large sums to a third party and that he was executing Letters of Authorization (LOAs) on behalf of multiple customers.

Torrey Pines Securities, Inc.: Censured; Fined $17,500

NAME REDACTED: No Fine in light of financial status; Suspended from association with any FINRA member in any principal capacity, other than the capacity of municipal securities principal, for 10 business days.

Bill Singer's Comment
Possibly the first time that I have seen a firm sanctioned for not noting "excessive absences, " but, under the attendant circumstances, that's a fair shot by FINRA and it would be appropriate for compliance/supervisory staff to note that such an attendance issue could indicate that some outside activity is imposing a strain upon a registered person.
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