Independent Contractor BD Failed to Supervise and Retain Emails
A large independent-contractor model brokerage firm agreed to pay a $225,000 fine and retain an independent compliance consultant for failing to supervise a rogue broker and retain emails. The SEC charges that the firm’s policies and procedures did not include a review of third-party disbursements to brokers’ outside business activity accounts. The SEC asserts that reasonable policies and procedures would have prevented or discovered illegal transfers from customer accounts to the rogue broker, who settled securities fraud charges. The SEC argues that the independent contractor model “entails greater supervisory challenges” and such firms “must establish policies and procedures reasonably designed to address those challenges.” The SEC also charges the firm with failing to preserve emails because it allowed reps to use non-firm email accounts.
OUR TAKE: Independent contractors can’t be “too” independent. Firms must limit and closely supervise outside business activities and require the use of the firm’s email system.