Investment Bank Will Pay $15 Million for Failing to Enforce Discipline against Research Analysts
A large investment bank agreed to pay $15 Million for failing to enforce its procedures prohibiting research analysts from selectively providing information to clients. According to FINRA, the firm allowed research analysts to attend “idea dinners” where they shared stock tips and related information with clients. In many cases, the information and recommendations were inconsistent with published research reports. The firm did have policies and procedures prohibiting the dissemination of this type of material nonpublic information, but, according to FINRA, the firm failed to adequately implement the procedures by failing to impose discipline after several warnings or long after the conduct occurred. Consequently, violators tended to ignore the warnings and continue to engage in the unlawful conduct.
OUR TAKE: Firms need to take immediate disciplinary action against individuals that violate firm policies and procedures. This could include memos in the personnel file, bonus reductions, fines, suspension, and termination. Otherwise regulators will fault the firm for a lax internal control environment.