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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.
September 2011
E1 Asset Management, Inc.
AWC/2010021038901/September 2011

While conducting a securities business, the Firm failed to maintain the required minimum net capital. The firmís financial books and records, including the firmís trial balances and net capital calculations, were inaccurate; the firm improperly netted payroll advances against its monthly payroll accrual, improperly included amounts held in a brokerage account as an allowable asset even though the firm did not have a Proprietary Accounts of Introducing Broker/Dealer (PAIB) agreement, failed to accrue some expenses and took a larger deduction for a fidelity bond deductible than it was permitted.

The Firm failed to report to FINRA statistical and summary information for complaints. NASD Rule 3070 reporting was inaccurate in that firm reports for these complaints included erroneous complaint dates, incorrect product codes, inaccurate problem codes and/or identified the wrong registered representative. In connection with some of its registered employees, the firm failed to amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose customer complaints and the resolution of those complaints, and the firm also filed late Forms U4 amendments.

The Firm failed to have an adequate system to preserve instant messages (IM) sent or received by registered representatives of the firm; the firm did not archive IMs in a non-erasable, non-rewritable format.

E1 Asset Management, Inc. : Censured; Fiend $75,000
Tags:  Net Capital        Instant Messaging     |    In: Cases of Note : FINRA
March 2011
First New York Securities L.L.C.
AWC/2006005271003/March 2011

The Firm failed to preserve for a period of not less than three years, the first two in an accessible place, copies of instant messages sent and received between several of the firmís traders and an external party on certain days within a total of approximately 10 weeks, and the new account form and clearing agreement for one of the firmís accounts at another broker-dealer. The firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning retention and review of electronic communications.

In response to an NASD Rule 8210 request, a firm principal orally asked the associated person originally responsible for the firmís reviews of such electronic communications to gather and deliver the evidence of such reviews but the associated person realized he had misplaced the file and was directed by his supervisor to duplicate past reviews. Instead of duplicating such reviews using the same parameters as were in effect during the review period, the associated person re-conducted such reviews using changed and expanded parameters, signed and hand-wrote in dates of when he estimated the reviews took place, and delivered them to the secretary of the firm principal who was responding to the inquiry on the firmís behalf. Without conducting any review of the newly created reports, the firmís principal submitted them to FINRA as evidence of the past reviews and the firm failed to take reasonable steps to confirm that the subject reports represented authentic and contemporaneous evidence of supervisory reviews that were actually conducted during the review period.

First New York Securities L.L.C. : Censured; Fined $65,000; Required to revise its written supervisory procedures concerning retention and review of electronic communications.
Tags:  Instant Messaging    Clearing Agreement    Electronic Communications     |    In: Cases of Note : FINRA
Bill Singer's Comment
FINRA advises that its sanctions in this case "reflect some mitigating factors."  U:nfortunately, those factors aren't actually spelled out in the monthly report.  As best I can infer, the mitigation is that the associated person likely thought that he/she was merely reconstructing missing documents rather than fabricating them. 
January 2011
Janney Montgomery Scott, LLC
AWC/2007009458001/January 2011

The Firm failed to

  • establish certain elements of an adequate AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the Department of Treasury;
  • establish policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) by failing to provide branch office managers with reports that contained adequate information to monitor for potential money-laundering and red flag activity; and for the firmís compliance department to perform periodic reviews of wire transfer activity, require either branch managers or the AML compliance officers to document reviews of AML alerts in accordance with firm procedures, identify the beneficial owners and/or agents for service of process for some foreign correspondent banks accounts, and establish adequate written policies and procedures that provided guidelines for suspicious activity that would require the filing of a Form SAR-SF;
  • establish policies and procedures that required ongoing AML training of appropriate personnel related to margin issues, entering new account information, verifying physical securities and handling wire activity;
  • ensure that its third-party vendor verified new customersí identities by using credit and other database cross-references, and after the firm determined that the vendorís lapse was resolved, it failed to retroactively verify customer information not previously subjected to the verification process;
  • establish procedures reasonably expected to detect and cause the reporting of suspicious transactions required under 31 USC 5318(g), in that it failed to include in its AML review the activity in retail accounts institutional account registered representatives serviced;
  • review accounts that a producing branch office manager serviced under joint production numbers;
  • evidence in certain instances timely review of letters of authorization, correspondence, account designation changes, trade blotters, branch manager weekly review forms and branch manager monthly reviews; failed to follow procedures intended to prevent producing branch office managers from approving their own errors;
  • follow procedures intended to prevent a branch office operations manager from approving transactions in her own account and an assistant branch office manager from reviewing transactions in accounts he serviced;
  • establish procedures for the approval and supervision related to employee use of personal computers and, during one year, permitted certain employees to use personal computers the firm did not approve or supervise,
  • include a question on thefirmís annual acknowledgement form for one year that required its registered representatives to disclose outside securities accounts and the firm could not determine how many remained unreported due to the supervisory lapse;
  • follow policies and procedures requiring the pre-approval and review of the content of employeesí radio broadcasts, television appearances, seminars and dinners, and materials distributed at the seminars and dinners; representatives conducted seminars that were not pre-approved by the firmís advertising principal as required by its written procedures; the firm failed to maintain in a separate file all advertisements, sales literature and independently prepared reprints for three years from date of last use; and a branch office manager failed to review a registered representativeís radio broadcast. A branch office manager failed to maintain a log of a registered representativeís radio broadcasts and failed to tape and/or maintain a transcript of the broadcasts and there was no evidence a qualified principal reviewed or approved the registered representativeís statements. Branch office managers did not retain documents reflecting the nature of seminars, materials distributed to attendees or supervisory pre-approval of the seminars; retain transcripts of a representativeís local radio program and TV appearances or document supervisory review or approval of materials used; and retain documents reflecting the nature of a dinner or seminar conducted by representatives or materials distributed;
  • record the identity of the person who accepted each customer order because it failed to update its order ticket form to reflect the identity of the person who accepted the order; and

  • to review Bloomberg emails and some firm employeesí instant messages

The Firm distributed a document, Characteristics and Risks of Standardized Options, that was not current, and the firm lacked procedures for advising customers with respect to changes to the document and failed to document the date on which it was sent to certain customers who had recently opened options accounts. Also, the firmís compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.

Janney Montgomery Scott, LLC : Censured; Fined $175,000
Tags:  Annual Compliance Certification    Email    Instant Messaging    SAR    AML    Bank    Third Party Vendor    Away Accounts    Broadcast    Producing Manager     |    In: Cases of Note : FINRA
Bill Singer's Comment
What can I say -- even I'm impressed!
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