Five Broker-Dealers Ordered to Pay $18 Million in Restitution for Failing to Wave Class A Mutual Fund Share Charges

The Securities and Exchange Commission (“SEC”) paid out an award totaling more than $325,000 to a former employee of an investment firm for supplying them with information regarding fraudulent activities at his former firm including specific information regarding the individuals involved. The information allowed the SEC to open an investigation and discover the extent of the fraud.

Family Endowment Partners, L.P. (“FEP”), a Massachusetts registered investment adviser, and its owner Lee Dana Weiss (“Weiss”) have been accused of violating the antifraud provisions of the federal securities law and related Securities and Exchange Commission (“SEC”) antifraud rules. Furthermore, the SEC alleges that FEP and Weiss aided and abetted violations of SEC rules related to custody of client assets and failure to disclose material facts.

Succession planning, particularly related to retirement planning, transitioning to a new business model, or merging with a new team, can be complicated. JLG has created the following checklist to assist you navigate through various considerations.

According to the North American Securities Administrators Association (“NASAA”) 2015 Enforcement Report on 2014 Data (the “Report”), state securities regulators conducted 4,853 investigations in 2014 resulting in $405 million in restitution, $174 million in fines and 1,629 years in prison sentences. The primary targets of those state enforcement actions were unregistered individuals followed by unregistered firms. According to the Report, licensed individuals made up 230 of the enforcement actions involving broker-dealer agents, 190 actions involved investment adviser representatives, 156 involved broker-dealer firms, and 146 involved investment adviser firms.

According to a Securities and Exchange Commission (“SEC”) complaint filed in Riverside County, California, Paul Ricky Mata (“Mata”), David Kayatta (“Kayatta”) and Mario Pincheira (“Pincheira”) are accused of violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the fraud charges the SEC has instituted an asset freeze.

Over the past few years, more and more firms are diversifying services and products. In an effort to support this business development and attract new talent, broker-dealers (“BDs”) are permitting associated persons to affiliate with independent, non-affiliated investment advisory firms (“IAs”) and vice-versa, which allows the representative to conduct both brokerage business (as a registered representative or “RR”) through the BD and advisory services (as an investment adviser representative or “IAR”) through the IA. This also allows for greater prospective client development opportunities, which leads to revenue generation. However, with more diversity come greater compliance challenges that necessitate engagement of legal counsel during particular transactions. This legal tip will provide important information regarding challenges compliance officers have in overseeing the “hybrid” business model, with a case study involving special considerations for supervision of outside business activities and revenue flow.

Click here to read the Legal Tip.

BDO USA (“BDO”), a national audit firm, and five of its partners are facing charges from the Securities and Exchange Commission (“SEC”) in relation to its client General Employment Enterprises (“General Employment”). According to an SEC press release, BDO ignored red flags and issued false and misleading unqualified audit opinions for General Employment.

The Municipal Securities Rulemaking Board (“MSRB”) is seeking The Securities and Exchange Commission’s (“SEC”) approval to apply business-related gift-giving limitations to its municipal advisors. According to an MSRB press release, the goal of the proposed rule change to MSRB Rule G-20 is to apply the same rules that apply to municipal securities dealers to municipal advisors and their associated persons. It is anticipated the amendments will address potential conflicts of interest created by gift-giving or gratuities connected to municipal advisory activities.

Birmingham, Alabama-based Stern, Agee, & Leech, Inc. (“Stern Agee”) submitted a Letter of Acceptance, Waiver and Consent (“AWC”) to pursue a settlement regarding alleged rule violations. According to FINRA’s Monthly Disciplinary and Other FINRA Actions Publication a Stern Agee employee placed customers’ personal and confidential information at risk when an unencrypted laptop was lost by an Information Technology (“IT”) employee.

On May 29, 2014, an IT employee lost a laptop by inadvertently leaving it in a restroom. The computer contained files which included customer information; customer account numbers, addresses and correspondence. At the time of the incident Stern Agee’s Written Supervisory Procedures (“WSP’s”) did not include policies requiring encryption.

According to the AWC, “the Firm's WSPs did not adequately address the technology in use, specifically, laptops, and the Firm failed to take appropriate technological precautions to protect customer and highly sensitive information.” FINRA found that Stern Agee’s supervisory systems were not reasonably designed to safeguard sensitive customer information. Furthermore, Stern Agee had insufficient supervisory procedures in place to protect customer information stored on laptops. Stern Agee has been charged with violating Regulation S-P of the Securities Exchange Act of 1934 (Regulation S-P, 17 C.F.R. §248.30), NASD Conduct Rule 3010 and FINRA Rule 2010.

Jacko Law Group, PC (“JLG”) assists securities and financial services industry clients develop effective written policies, procedures and internal controls that help prevent abuses, detect and mitigate conflicts of interest, reduce firm risk and maintain compliance with firm protocols and regulatory requirements.

For more information on this and other related subjects, please contact us at info@jackolg.com

or (619) 298-2880.