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.
December 2010
Activa Capital Markets, Inc.
AWC/2009015972001/December 2010
The Firm failed to implement an audit system regarding a third-party vendorís maintenance and preservation of the firmís electronic records, and thus failed to adequately retain and maintain its business-related electronic communications during that period.
Activa Capital Markets, Inc.: Censured; Fined $30,000
Tags:  Third Party Vendor     |    In: Cases of Note : FINRA
Bill Singer's Comment
We saw an increase in 2010 of these third-party vendor oversight cases.  I suspect that the focus will continue into 2011.
July 2010
Investscape, Inc. and Richard Michael Lim (Principal)
AWC/2008011737101/July 2010

Acting through Lim, the Firm failed to

  • preserve emails in nonrewritable, non-erasable format;

  • failed to provide FINRA with notifications of its use of electronic storage media;

  • provide FINRA with a letter from a third party describing the third partyís undertakings regarding the firm's electronic storage media as specified by Securities and Exchange Commission (SEC) Rule 17a-4; and

  • evidence the review of all incoming and outgoing email communications with customers.

  • inspect branch offices even though it had been previously warned in a Letter of Caution that branch offices needed to be inspected on a regular basis.

The firm's written procedures failed to identify locations that regularly conducted the business of effecting securities transactions by soliciting new accounts as branch offices, and failed to address the firm's requirement to conduct internal inspections of these offices.

Investscape, Inc.: Censured, Fined $7,000; and Fined $17,500, jointly and severally with Lim

Richard Michael Lim: Fined $17,500, jointly and severally with Investscape and Suspended 1 year in Supervisory capacity only 

Bill Singer's Comment
That's a hefty 1-year supervisory suspension imposed on top of a $17,500 joint/several fine upon the individual principal Lim.  FINRA is really honing in on electronic communications retention practices.
June 2010
PlanMember Securities Corporation
AWC/2009016589701/June 2010
PlanMember Securities failed to have in place any system or procedures for supervising a third-party vendorís breakpoint determinations. The Firm outsourced its breakpoint determination to a third-party vendor and, due to a software programming error, the vendor failed to take certain B shares into consideration when determining the firmís customersí breakpoints, so customers were overcharged approximately $4,000 for their mutual fund purchases.  ALL customers were later reimbursed. The Firm's decision to outsource its breakpoint determinations to a third party did not relieve the firm of its ultimate responsibility for the outsourced activity. The Firm failed to have adequate policies and procedures in place to monitor the outside vendorís compliance with the terms of its agreement with the firm, and to assess its continued fitness and ability to perform the outsourced activities.
PlanMember Securities Corporation : Censured; Fined $20,000
Tags:  Third Party Vendor    Breakpoint     |    In: Cases of Note : FINRA
Bill Singer's Comment

Frankly, this case disgust me.  For some context, read this recent SEC action against a Chinese listed company that made an accounting error that resulted in a few years of erroneous, publicly reported financials.  In that Chinese-firm case, the SEC imposed no fine or censure but settled for an Cease-And-Desist.

Why is there a $20,000 fine in this case?  The FINRA member firm hired a Third Party Vendor to handle certain mutual fund computations.  Omigod! There was a software error!! As if what?  That doesn't happen to all of us -- not even FINRA?

Regrettably, PlanMember's customers suffered a $4,000 overcharge as a result of a computer error made by its third party vendor. The entire overcharge was refunded to all customers and we can infer that the member firm took steps to ensure better communications with its vendor.  Nonetheless, nothing that happened here was intentional and, I suspect, nothing that the member firm had reasonably done would likely have prevented the glitch.  These things just happen. 

I can think of few pronouncements that issue from FINRA and other hypocritical regulators that are more obnoxious and absurd than this:  The Firm's decision to outsource its breakpoint determinations to a third party did not relieve the firm of its ultimate responsibility for the outsourced activity. I mean, really, give me a break!

Enforcement Actions