Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
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.
March 2011
Canaccord Genuity Inc. fka Canaccord Adams, Inc.
AWC/2008012243901/March 2011

As an active participant in the U.S. Private Investment in Private Equity (PIPE) market, Canaccord failed to have in place reasonable information barrier procedures with respect to its PIPE business. The firm failed to have a reasonable system in place to track employees who were brought “over the wall” on specific PIPE transactions, and while the firm had a procedure in place requiring the maintenance of a “wall-crossing log,” it did not maintain such a log. The firm stored information about over-the-wall employees in a computer file that was not readily accessible to persons with responsibilities to monitor trading and review emails of employees brought over the wall on investment banking matters.

The firm failed to maintain a specific log of employee transactions in securities on the firm’s grey list and/or restricted list, and the firm was unable to provide documentation evidencing that it had investigated employee trading in grey list securities to determine whether employees had misused material, non-public information.

The Firm failed to have a reasonable system in place to monitor the flow of information concerning PIPE transactions to potential investors, and while the firm’s procedures required sales persons to obtain verbal agreements from potential investors to keep information concerning PIPE transactions confidential and refrain from trading on such information, the firm did not reasonably ensure that the procedure was followed or document that such verbal agreements were obtained. The information that was maintained concerning the disclosure of information on PIPE transactions was not used for supervisory or compliance purposes.

In addition, the firm’s system for review of email correspondence was unreasonable; while the firm’s procedures required the review of a sample of email communications, the sample included mail boxes for users no longer employed at the firm and permitted Compliance Department employees, at their discretion, to mark emails as reviewed based solely on a review of the sender’s name, recipient’s name and subject line of an email; stated differently, the firm permitted “bulk review” of emails without any written guidelines informing compliance staff of the parameters for such review.

Moreover, the Firm also utilized an Internet chat room system that allowed members of its business units, including but not limited to, the investment banking and research departments, to communicate and/or review each other’s communications. Furthermore, the firm did not have in place any written procedures relevant to monitoring internal communications between its business units on the internal chat room system and could not document that it actively monitored such communication.

Canaccord Genuity Inc. fka Canaccord Adams, Inc. : Censured; Fined $40,000
Tags:  PIPE    Electronic Communications    Email    Internet     |    In: Cases of Note : FINRA
Bill Singer's Comment

An interesting case on a few levels.  First, my long antagonism to PIPEs is noted -- I tend to absolutely hate these transactions as among the most pernicious evils of Wall Street that are often little more than battering rams used against smaller issuers.

The bulk review aspect of this case warrants attention.  The apparent failure to age-out the database and to include within samples inactive mail accounts is a practice that compliance departments should now note is within FINRA's cross-hairs.  Similarly, if your firm provides an internal chat facility, make sure that you have documented procedures for monitoring that communication system.

Enforcement Actions