Policy Patty Toolkit 

Making the world a little more compliant one toolkit at a time.


Woodbury to Pay $1.1 Million for Failing to Supervise Former Broker

Posted on June 28, 2018 at 8:35 AM

Independent broker-dealer Woodbury Financial Services was ordered to pay $1.1 million to a couple who invested in an aircraft company, a military building in Indiana, variable annuities, and A-share mutual funds, among other allegedly unsuitable investments.

The decision was posted on FINRA’s dispute resolution website. The three-person arbitration panel found that Woodbury, a unit of the Advisor Group, “permitted the execution of unsuitable transactions as a result of its f...

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SEC Charges Merrill Lynch for Failure to Supervise RMBS Traders

Posted on June 12, 2018 at 2:45 PM

The SEC announced that Merrill Lynch, Pierce, Fenner & Smith Inc. will pay more than $15 million to settle charges that its employees misled customers into overpaying for Residential Mortgage Backed Securities (RMBS). Merrill Lynch agreed to repay more than $10.5 million to its customers and to pay penalties of approximately $5.2 million.

In its order, the SEC found:

  • Merrill Lynch traders and salespersons convinced the bank’s customers to overpay for RMBS by deceiv...
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FINRA Sanctions Fifth Third Securities, Inc., $6 Million for Cost and Fee Disclosure Failures and Unsuitable Recommendations Related to Variable Annuity Exchanges

Posted on May 9, 2018 at 11:20 AM

FINRA fined Fifth Third Securities, Inc., $4 million and required the firm to pay approximately $2 million in restitution to customers for failing to appropriately consider and accurately describe the costs and benefits of variable annuity (VA) exchanges, and for recommending exchanges without a reasonable basis to believe the exchanges were suitable. This is the second significant FINRA enforcement action against Fifth Third involving the firm’s sale of variable annuities.


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FINRA Issues Guidance on Measures for Heightened Supervisory Individuals

Posted on May 1, 2018 at 1:30 PM

FINRA reminded firms to routinely evaluate their supervisory procedures to ensure they are appropriately tailored for each associated person and take into consideration, among other things, the person’s activities and history of industry and regulatory-related incidents. When an associated person of the firm has a history of industry or regulatory-related incidents, the firm must make a reasonable determination as to whether its standard supervisory and educational programs are adequate...

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FINRA Fines Aegis Capital Corp. $550,000 for Anti-Money Laundering and Supervision Rule Violations

Posted on March 28, 2018 at 5:10 PM

FINRA fined Aegis Capital Corp. $550,000 for failing to have adequate supervisory and anti-money laundering (AML) programs tailored to detect "red flags" or suspicious activity connected to its sale of low-priced securities. The fine is based on the following findings:

• Aegis’ supervisory system for trading in delivery versus payment (DVP) accounts was not reasonably designed to satisfy its obligation to monitor and investigate trading in DVP accounts, particularly in low-p...

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FINRA Fines Wedbush Securities Inc. $1.5 Million for Customer Protection, Net Capital Rule Violations and Related Failures

Posted on February 6, 2018 at 9:50 AM

FINRA fined Wedbush Securities Inc. $1.5 million for violating the SEC’s (SEC) Customer Protection and Net Capital Rules, and for related supervisory and books and records failures. FINRA found that:

• Wedbush was net capital deficient, ranging between $10.5 million and $59.4 million.

o Note: The deficiencies resulted from Wedbush’s failure to take required deductions when valuing certain certificates of deposit for purposes of computing its net capital.


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Merrill Lynch Fined $1.4 Million for Supervisory Deficiencies Related to Extended Settlement Transactions

Posted on December 19, 2017 at 1:00 PM

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.4 million for failing to establish a reasonable supervisory system and procedures to identify and evaluate extended settlement transactions, and for related rule violations. Extended settlement transactions have a longer time between trade and settlement than routine securities transactions, and therefore involve an extension of credit and exposure to counterparty, credit and market risk. Merrill was charged because it fail...

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Email Issues and Deficiencies - Regulatory Actions

Posted on December 14, 2017 at 9:25 AM

I thought this recent blog from Marianna Shafir in the SMARSH blog was a good read on the continuing issues for firms regarding inadequate electronic communication policies, supervision, and records. Marianna uses four recent FINRA actions and requirements to highlight this point. Consider:

• Recent Regulatory Actions

o A firm was censured and fined $175,000 for failing to maintain electronic brokerage records related to approximately 46 million market-making transactions in...

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FINRA bars New York broker who cheated blind elderly widow

Posted on December 8, 2017 at 8:05 AM

FINRA barred Hank Werner, a New York-based broker, for churning the account of a blind elderly widow and recommending unsuitable investments. Werner was ordered to pay more than $155,000 in restitution to the widow and penalized $80,000. The charges stem from high-frequency trading and high commissions. FINRA also ordered Werner to disgorge $10,000 in commissions e for recommending an unsuitable variable annuity.

In sum:

• The same ...

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FINRA releases report on exam findings

Posted on December 6, 2017 at 2:40 PM

FINRA released the Report on FINRA Examination Findings to help firms strengthen their compliance with securities rules and regulations. The report focuses on selected observations from recent examinations that FINRA considers worth highlighting due to their potential impact on investors and markets or the frequency with which they occur.

Highlights from Report


FINRA observed a variety of areas where some firms could improve their cybersecurity programs against...

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