Firm to Pay $3.75 Million for Negligent Broker Due Diligence and Supervision
A large broker-dealer agreed to pay a $2.5 Million fine and an additional $1.25 Million in restitution for failing to supervise a broker and timely filing U4s and U5s. FINRA charges the broker with failing to properly investigate the broker before hiring him, relying solely on the CRD system rather than conducting a criminal background check and surveying court records, which would have uncovered significant reportable events. The broker ultimately stole money from clients, which, according to FINRA, could have been stopped had the firm adequately followed up on red flags such as excessive trading and unauthorized wire transfers. Separately, FINRA also alleges the firm had a systemic breakdown with respect to filing U4s and U5s, thereby misleading the public about hundreds of allegation against its brokers. The firm’s legal department failed to timely file the U4s and U5s even though it had knowledge of its failings.
OUR TAKE: Firms need to retain compliance professionals responsible for conducting rep due diligence and making the necessary filings. Otherwise, these seemingly mundane tasks, when done improperly, could endanger your firm.