For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, HarryEugene Asmussen submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Harry Eugene Asmussen,Respondent (AWC 2010023471001, June 25, 2012)
In 1983, Asmussen entered the securities industry with Pruco Securities, LLC, where he subsequently became a Series 63, 6,7,65, and 26 registered representative, Following his June 2010 resignation from Pruco, he worked at various brokerage firms, advisors, and insurance agencies until his October 2011 registration with Newport Coast Securities, Inc.
While registered with Pruco during the relevant period from January 2009 to September 2010, Asmussen referred his customers to an unaffiliated, outside insurance agent, who paid to Asmussen a percentage of commissions on any issued replacement insurance policies. The AWC alleged that Asmussen's failure to disclose the commission payment arrangement to Pruco constituted the non-disclosure of an outside business activity in violation of NASD Conduct Rule 3030: Outside BusinessActivities of an Associated Person and FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Asmussen a $5,000 fine and a three-month suspension from association with any FINRA member in any capacity.
There's not all that much news today and with the upcoming July 4th holiday, the chances of any earth shattering securities industry regulatory news remains unlikely Consequently, let me use this lull in the action to focus on an ongoing and common regulatory stumbling block. FINRA's Asmussen is by no means a significant settlement and the fine and suspension are pretty much in line with precedent. As such, this is a fairly simple road map to the consequences of not notifying your member firm about an outside business activity or "OBA" as it's known in industry parlance.
OBA is not a Star Wars character - neither a hero nor a villain - but what many view as a speed trap on the regulatory highway. Regardless of your view on the violation, it's on the books and enforced; moreover, this inconvenience of a notification requirement for some has a nasty habit of sidetracking careers. OBA violations are found all over Wall Street - at major firms such as Merrill Lynch, Wells Fargo, Morgan Stanley, and JP Morgan; and at indie/regionals such as LPL and Charles Schwab. Rather than an egregious consumer fraud, most of these OBA violations are little more than a financially beleaguered broker trying to earn a few extra bucks to pay off mounting bills. On the other hand, as FINRA often admonishes, the truly egregious OBA violations often involve consumer fraud and can impose crippling liability upon the unknowing employer firm. I get that, which is why I'm not completely up in arms over the issue.
Because Asmussen's transactions occurred prior to the implementation of FINRA's new Outside Business Activity Rule, the citation in the AWC is to the prior NASD Conduct Rule 3030. Let me offer for your consideration the spanking new rule with FINRA's attendant comment as to the obligations of the employing member firm upon receipt of its registered person's notice of OBA:
FINRA Rule 3270. Outside Business Activities of Registered Persons
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.
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.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).