Stockbroker Convicted Of Motor Vehicle Felony Poses Reporting Problems For Brokerage Employer

April 13, 2012


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, Brokers International Financial Services, Inc. ("BIFS") submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Brokers International Financial Services, Inc, Respondent (AWC 2011025492901, April 4, 2012).

BIFS, headquartered in Panora, IA, has been a FINRA member since 2006, and according to the AWC, has no prior relevant disciplinary history.

From September 30, 2009, through February 5, 2010, and from May 24, 2011, through June 27, 2011, BIFS allowed a statutorily disqualified person (due to a felony conviction for serious injury by motor vehicle) to associate with the firm prior to approval, in violation of FINRA Rule 2010, and FINRA By-Laws, Article III, Section 3.

From August 23, 2008, to May 24, 2011, BIFS was required to file 25 Forms U4 or U5 , but failed to timely file in five instances by 8 to 440 days late. Further, the firm filed:

  • one late and one inaccurate Form U4, and
  • one inaccurate Form U5

regarding the felony conviction of a registered representative. These late/inaccurate filings allegedly constituted violations of NASD Rule 2110, FINRA Rule 2010, LM-1000-1, and FINRA By-Laws, Article V, Sections 2 and 3.

Separately, on ten occasions, BIFS was required to make NASD Rule 3070 disclosure-event filings but in 3 instances failed to timely file by 7 to 27 days. Further, the firm submitted three inaccurate 3070 filings and failed to submit a 3070 filing disclosing the felony conviction of a registered representative.

From February 1, 2009, through November 30, 2011, BIFS allegedly failed to maintain written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and regulations, and utilized recruiting and hiring guidelines that were inaccurate and inadequate regarding the hiring and registration of statutorily disqualified persons.

In accordance with the terms of the AWC, FINRA imposed the sanction of a Censure and $16,000 fine.

Bill Singer's Comment

Unlike the usual felony/statutory disqualification cases that I often write about, this regulatory case involves the hiring brokerage firm and not the individual broker. All in all, a fairly straightforward and fair case: On the scale of regulatory violations, not a particularly egregious case but one that show a troubling lack of timely filing.  Similarly, FINRA's response seems properly measured and the modest fine will hopefully get the member firm's attention. Given that this scenario recurs at firms all over Wall Street - Merrill Lynch, Morgan Stanley Smith Barney, Wells Fargo, JP Morgan, UBS and smaller participants - Compliance Departments should make a point of getting the word out about the need to timely disclose such events.