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 Firm’s 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 firm’s assets, liabilities, income and expenses. The Firm impermissibly “netted” 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 firm’s 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 firm’s 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
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 firm’s 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.