A broker-dealer has settled FINRA fees for excessive client account trading, as well as missing red flags and failing to respond in a timely manner when red flags were spotted.
In an acceptance, waiver and consent letter, FINRA found that the broker’s representatives were excessively trading in 25 client accounts generating more than $1,000,000 in fees. FINRA found that the broker-dealer did not identify or respond in a timely manner to red flags that indicated potential excessive trading, and that the broker-dealer’s procedures did not provide reasonable guidance on how to identify when an account was over-trading. FINRA has found that excessive trading restrictions on the account generally do not go into effect until one month after it is reported, allowing representatives to continue excessive trading on the account until the restrictions come into effect. in force. Additionally, FINRA found that the restrictions did not limit the number of trades a representative could place in a given account, but merely limited the commission that could be charged. FINRA said the failure resulted in clients being charged thousands of dollars in commissions even after their accounts were flagged.
As a result, FINRA determined that the broker-dealer violated Rule 2010 (“Standards of Trading Honor and Principles of Trading”) and Rule 3110 (“Supervision”).
To settle the charges, the broker agreed to (i) a censure, (ii) restitution of $825,607, and (iii) undertakings to improve its policies regarding the review of excessive trading.