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
A&F Financial Securities, Inc.
AWC/2008011649201/December 2010

The Firm failed to

  • create and maintain adequate records of customer complaints,
  • report timely statistical and summary information concerning the complaints, and
  • timely report the settlement of one of the complaints.
  • timely update a registered person’s Uniform Application for Securities Industry Registration or Transfer (Form U4) upon learning of the facts and circumstances giving rise to the amendments.
  • implement its own heightened supervisory procedures with respect to registered representatives on heightened supervision.

When establishing its heightened supervision procedures, the firm decided to exclude brokers on heightened supervision from its monthly surveillance report; accordingly, the activities of the registered representatives under heightened supervision were not shown. The special supervisor designated to manually review all trades of registered representatives on heightened supervision for suitability and excessive trading relied on his manual review when determining which accounts should be reviewed and contacted “for cause,” rather than choosing clients at random and with cause based on trading activity. FINRA found that this was inadequate because the manual review failed to identify numerous accounts that had turnover ratios in excess of six times the average equity annualized.

A&F Financial Securities, Inc. : Censured; Fined $27,500
Tags:  Supervision    Turnover     |    In: Cases of Note : FINRA
Bill Singer's Comment
Interesting issue here is that the old-fashioned "eyeballing" of accounts may no longer be the minimally acceptable standard.  Clearly, FINRA is chastizing the supervisor for not reading exception runs that would have highlighted turnover ratios.
January 2010
John Michael Campbell
AWC/2008011565202/January 2010
As the Chief Compliance Officer of his member firm, Registered Principal Campbell failed to establish, maintain and enforce an adequate supervisory system and adequate written supervisory procedures (WSP) to detect and prevent excessive trading in customer accounts by the firm ’s registered representatives. The Firm's WSP required Campbell to conduct quarterly account reviews and determine the turnover ratios for the accounts, but Campbell failed to follow these procedures. The WSP were unreasonable because they failed to require the firm to take any specific action when a customer’s account exceeded a specified turnover ratio. Campbell failed to reasonably supervise registered representatives who excessively traded in customer accounts and failed to respond to red flags presented by their excessive trading, exposing customers to losses that occurred as a result of excessive and unsuitable trading, improper use of discretion or other sales practice violations.
John Michael Campbell: In light of Campbell's financial status, no Fine; Suspended 90 days in Principal capacity only
Tags:  Supervisory System    WSP    Turnover     |    In: Cases of Note : FINRA
Bill Singer's Comment

In recent years, FINOPs and CCOs are being named and sanctioned in FINRA enforcement actions. In this case, the CCO is whipsawed by a WSP deemed to have procedures that he did not follow and to have insufficient procedures that FINRA deemed to render the WSP unreasonable. 

Practice Pointer: If you are a new CCO, you might wish to retain an independent outside compliance consultant to give the firm's WSP the once over and revise or update any deficiencies.  Similarly, you should consider having the same consultant conduct an annual review of the document.  If nothing else, it will at least serve to document your good-faith in attempting to comply with the WSP rules.

Enforcement Actions