Large BD to Pay Over $4 Million Because Internals Weren’t Licensed in States
A large broker-dealer entered into a multi-state consent order whereby it agreed to pay $4.58 Million in connection with allowing unlicensed client service associates (aka internals) to enter customer orders. The primary job of the CSAs was administrative support to financial advisers: inviting clients to firm events, providing quotations, setting up meetings, and entering orders approved by licensed personnel. However, the Order alleges that the CSAs entered orders received directly from the customers and that such activity required a Series 7 and licensing in each state where the client resided, whether or not the order was solicited or unsolicited. The Order charges that, although CSAs may have had their Series 7, many were not licensed in all the states where the clients resided. The Order charges the firm with failing to establish a reasonable supervisory system and maintain proper books and records.
OUR TAKE: Firms must be very careful to insure that unlicensed internals do not cross the line into securities activities that require registration in the states. Aside from regulatory actions like this one, firms may also risk rescission orders if sued by clients.