REPS SANCTIONED FOR FAILING TO MAKE DISCLOSURES TO BD FIRMS
In two recent opinions, the SEC upheld sanctions imposed by FINRA against registered representatives who failed to report important information to their firms. In one action, the Rep failed to disclose pending litigation, resulting in material misstatements on his U4. Although the Rep claimed discussions concerning the action, the SEC stated that the Rep had primary responsibility for ensuring the U4’s accuracy. In the other action, the Rep failed to provide written notice to her firm that she received compensation for assisting clients in preparing tax returns. The SEC rejected the defense that the firm had constructive notice.
OUR TAKE: The SEC and FINRA are reinforcing that the Rep has primary responsibility for making disclosures to his/her firm. Firms should give Reps every opportunity to make full disclosure.