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
Searle & Co. and Robert Southworth Searle (Principal)
AWC/2009016262101/September 2011

Although the Firm sought and received permission to conduct its private placement activity, it failed to timely amend its Application for Broker-Dealer Registration (Form BD), as it did not identify this business on its Form BD until years later.

Acting through Searle, the Firmís president and CCO failed to establish, maintain and enforce an adequate system and written procedures reasonably designed to supervise its placement business; and failed to adequately supervise the placement business conducted by a former registered representative who conducted firm business at an unregistered office. The Firm failed to adequately ensure that its ledgers or other records accurately reflected all of the firmís assets, liabilities, income and expenses. The Firm impermissibly ďnettedĒ the commission revenue it received, failing to reflect the gross amount of commission the firm received and the amount paid to the registered representative who placed the business, thus understating gross revenues and expenses. As a result, the Firm filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) Reports and inaccurate annual audits.

The Firm failed to establish, maintain and enforce adequate WSPs regarding the use of outside emails for firm business and the review and retention of emails; the firm permitted associated persons to use personal email accounts to send and receive emails related to the firmís securities business without capturing, reviewing or retaining them.

In addition, the Firm paid fees and commissions totaling $21 million to non-registered limited liability company (LLC) entities of which the firmís registered representatives were the sole members. Moreover, the Firm improperly paid the non-registered entities rather than paying the commissions and fees directly to the registered representatives who owned the non-registered entities. The suspension was in effect from August 15, 2011, through August 26, 2011. (FINRA Case #)

Searle & Co.: Censured; Fined $47,500 ($10,000 was jointly and severally with Searle)

Robert Southworth Searle: Fined $10,000 joint/several with Searle & Co.; Suspended 10 business days in Principal capacity

Tags:  Membership Agreement    Material Change Of Business    FOCUS    Email     |    In: Cases of Note : FINRA
Bill Singer's Comment

Geez, another well written disciplinary action squib --  maybe things are truly changing for the better at FINRA?  Is that possible?  Wow!!

In any event, two key takeaways. One, make sure to update your Form BD to reflect all new business lines.  Two, don't pay transactional compensation to unregistered entities/persons.

If I have one quibble with the case, it's this:  If FINRA knew that this member firm had asked for and been granted approval to engage in a new business, then how come it took "years later" for the regulator to notice that the Form BD was not updated?  After all, assuming that FINRA (or NASD's) Staff was conducting an annual or at least a regulator examination fo the firm, didn't any examiner notice that the firm was engaged in a line of business for which it had been approved but for which it had not updated the Form BD.  I mean isn't that sort of regulatory examination 101?

May 2011
TradeStation Securities, Inc.
AWC/2010023770401/May 2011

The Firm proceeded with new business operations prior to obtaining FINRA approval. The firm filed an Application for Approval of Change of Business Operations to move its futures business operations from fully-disclosed clearing to omnibus clearing operations, and while it requested expedited processing of its application, it did not wait for approval before commencing omnibus clearing.

FINRA notified the firm by letter that it had conducted an initial review of the application and requested additional information regarding the firm and the proposed change in business operations. The firm provided the requested information to FINRA by letter, in which it notified FINRA that it made the required net capital increases and went live with its omnibus arrangement although FINRA had neither concluded its review of the application nor granted the firmís request for provisional approval to effect the change from fully disclosed to omnibus clearing operations.

At the time the firm was undergoing the approval process for its application, the firm was also contemplating a change in its business operations to prime brokerage. The firm informed FINRA that prior to conducting any full scale prime brokerage business, it intended to submit a separate Rule 1017 application. In addition, the firm submitted another Application for Approval of Change of Business Operations requesting approval to conduct prime brokerage business, which FINRA approved, although the firm had been engaging in unapproved prime brokerage activity prior to approval.

TradeStation Securities, Inc. : Censured; Fined $15,000
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