The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.
A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.
During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.
J.P. Turner and H. Beck lacked the written procedures tackling consolidated reports and their supervision and use, said FINRA. The action against H. Beck also dealt with violations linked to unit investment trust sales. FIRNA said that all three firms had representatives who used consolidated report systems that let them submit customized values for investments or accounts that were held away from the firm. However, the firms’ procedures lacked the safeguard to confirm their accuracy. By settling, the three firms are not denying or admitting to the self-regulatory organization’s findings.
FINRA Sanctions Three Firms for Inadequate Supervision of Consolidated Reports, FINRA, March 30, 2015
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FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013
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Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud, Institutional Investor Securities Blog, March 11, 2015