In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2010, public customer Claimant Tarrant sought $500,000 in compensatory damages plus interest and cost, and punitive damages, as a result of damages allegedly sustained from his being solicited to invest in a real estate project and the subsequent sale of various securities (among which was a SunLife annuity) in his account to fund a loan made to Claimant's broker. Claimant Tarrant asserted causes of action for
- breach of fiduciary duty;
- negligent supervision;
- fraud; and
- breach of contract.
Respondent Kovack Securities generally denied the allegations and asserted various affirmative defenses. In the Matter of the FINRA Arbitration Between Russell Stephen Tarrant, Claimant, v. Kovack Securities, Inc., Respondent (FINRA Arbitration 10-03532, February 13, 2012).https://www.finra.org/sites/default/files/aao_documents/10-03532-Award-FINRA-20120213.pdfSIDE BAR: Permit me a short rant at this point.Those of you familiar with my reporting about FINRA arbitrations know that I detest the hide-and-seek nature of far too many of the organization's Decisions. Believing that a cogent presentation of the factual background of a dispute provides meaningful context to the ultimate ruling, I am puzzled as to why there appears no effort to enforce such a presentation.In this case, for example, what I've written above is pretty much all that the Decision sets forth up to and until the Arbitration Panel announces its findings and sanctions. I mean, really? You're going to rule on liability in a case demanding at least $500,000 plus punitive damages and all that you're going to explain to us is that there was a dispute about how the customer was solicited and there were some further issues pertaining to the sales of securities to fund a loan to the broker? Wow . . . thanks for nothing.DECISIONThe FINRA Arbitration Panel found Respondent Kovack Securities liable and and ordered the firm to pay to Claimant Tarrant:
- $100,000.00 (pre-judgment interest specifically denied);
- $200,000 in punitive damages;
- $14,017.00 in costs; and
- $300 reimbursement of FINRA filing fee.
Bill Singer's CommentYou know, it would help - really help - if FINRA required that its Arbitration Decisions followed a somewhat uniform format of setting forth a minimal recitation of the underlying facts so that the rulings are comprehensible and meaningful. In Tarrant, for example, we have a fairly unusual situation where a FINRA Arbitration Panel awarded punitive damages equaling double the award of compensatory damages. In and of itself, that's a notable event - it implies that the misconduct at issue was far more than a routine mishap and that the Respondent's future conduct needed to be influenced by this more severe sanction. Unfortunately, when sending such a message, the missive tends to get lost in the mail, so to speak, because it's virtually impossible to understand who did what here.In its own words, this is what the Panel explained - not before rendering the financial awards but as part of that statement:The panel determined that punitive damages should be awarded due to the egregious behavior on the part of the broker and the apparent lack of any system of supervision by the Respondent. The broker was employed for over two and one-half years by Respondent and there was no evidence of any compliance reports. The situation is more egregious given the Respondent was aware the broker had been terminated from another firm due to unreported and unapproved outside activities. Even though the broker disclosed an outside activity shortly after being employed by Respondent, there was no evidence of any type of supervision or monitoring system to ensure the outside activity was conducted properly. Additionally, the Claimant was never notified that the broker was terminated and continued to receive financial statements from Respondent listing the broker as the financial adviser. . .Some Snotty QuestionsSo tell me, pray do, members of this FINRA Arbitration Panel:
- What was the name of the stockbroker who seems to have inflamed your ire? (You know, in case a public investor would like to look him or her up.)
- What constituted the "egregious behavior" that you cited? (Don't you think it might have been helpful if you set forth the acts and conduct?)
- What was the nature of the prior "unreported and unapproved outside activities?" (Why reference it if you don't explain it to us?)
- Did you vote to refer this matter to FINRA for a regulatory investigation?
Why do I rant about these bits of missing information? Because there is an obligation by FINRA to inform the public and the industry about these matters - otherwise, what's the point of issuing these Decisions? And while Kovack Securities isn't exactly a household name, that doesn't justify the lack of explanation.Arbitrations are not supposed to be about punishing individual brokers and brokerage firms but about awarding restitution to harmed public customers or industry participants. In those rare cases where a Panel decides that it needs to do more than award compensatory damages, I think it is critical that such a sanction be justified and placed within its proper context by the arbitrators. It doesn't matter if it's a small indie/regional firm or some behemoth like Wells Fargo, Merrill Lynch, JP Morgan, or Morgan Stanley: The public and the industry are entitled to know sufficient background so as to explain a given Decision and to ensure that the desired message (if any) is properly transmitted. In the case of a relatively smaller firm such as Respondent Kovack Securities, the lack of detail about the individual broker and the underlying misconduct not only deprives us, the readers, of the ability to judge whether the punitive damages were warranted but also prevents the Respondent from defending itself to the public and the industry.UPDATE March 2012:In response to Tarrant's and Kovack Securities' Joint Motion for Order Vacating Arbitration Award and Dismissal of Action and all Claims, the United States District Court for the Southern District of Florida ("SDFL") granted the Motion, vacated the FINRA Arbitration Award, and dismissed the action with prejudice. Russell Stephen Tarrant, Petitioner, v. Kovack Securities Inc., Respondent (Order Vacating Arbitration Award and Dismissing All Claims with Prejudice, SDFL, 12-CV-60272 / March 23, 2012)https://www.finra.org/sites/default/files/aao_documents/10-03532-Order%20to%20Vacate-FINRA-20120213.pdf As set forth in pertinent part in SDFL's Order:Petitioner Russell Stephen Tarrant ("Tarrant") filed his Petition to Confirm Arbitration Award [DE 1] seeking confirmation of a FINRA arbitration award rendered on February 13, 2012 ("Award"), in favor of Tarrant and against Respondent Kovack Securities, Inc. ("Kovack"). In response, Kovack filed its Opposition to Petition to Confirm Arbitration Award and Cross-Petition to Vacate Arbitration Award [DE 18], Kovack contended that the Award: (1) failed to comply with Florida law for the issuance of awards containing punitive damages; (2) exceeded the scope of authority afforded by Florida and federal iaw; and (3) demonstrated evident partiality by the arbitration panel. In the present motion filed jointly by both Tarrant and Kovack, the parties have agreed that there exists grounds for vacatur based upon the form of the Award. . . .
As such, SDFL vacated the FINRA Arbitration Award and dismissed the action with prejudice. Whether or not the joint motion was prompted by a settlement between the parties is not stated in the SDFL Order.
On March 31, 2004, FINRA issued Notice to Members 04-26, Unit Investment Trust Sales, which reminded broker-dealers that they should develop and implement procedures to ensure customers receive available sales charge discounts for UITs. The Notice further stated that UIT transactions must take place "on the most advantageous terms available to the customer" and that it is the firm's responsibility to "take appropriate steps to ensure that they and their employees understand, inform customers about, and apply correctly any applicable price breaks available to customers in connection with UITs."During the Relevant Period, Kovack failed to identify and apply sales charge discounts to certain customers' eligible purchases of UITs, which resulted in customers paying excessive sales charges of $119,319.27. Kovack has paid restitution to all affected customers. Based on the foregoing, Kovack violated FINRA Rule 2010.Also during the Relevant Period, Kovack failed to establish, maintain and enforce a supervisory system reasonably designed to ensure customers received sales charge discounts on all eligible UIT purchases. The Firm relied primarily on its registered representatives to ensure that customers received appropriate UIT sales charge discounts despite the fact that the Firm did not effectively inform and train representatives and their supervisors to identify and apply such sales charge discounts. Based on the foregoing, Kovack violated NASD Conduct Rules 3010(a) and (b) and FINRA Rule 2010..
Having fully disclosed his biases in his opening remarks, Edwards asserts the following in part at Pages 592 - 594 of his article:The financial services industry indirectly regulates itself through little-discussed, scandal-prone, and structurally-entrenched self-regulatory organizations. FINRA, the most prominent of these self-regulatory organizations, makes regulations and sets enforcement policy that directly affect public welfare. As with other self-regulatory organizations, FINRA's structure poses a continual risk that industry members will subvert its processes to act like a cartel, promoting industry interests at the expense of the public and contributing to the excessive rents collected by financial intermediaries. Although this dark side to self-regulation poses a constant danger, structural reforms may increase the likelihood that FINRA and other self-regulatory organizations will take the public's interests into account. While others have discussed how self-regulatory organizations increasingly resemble a fifth branch of the federal government, this article shifts the focus to how the public actually exercises its voice within FINRA and other self-regulatory organizations.This Article examines the purportedly public representatives serving on FINRA's Board of Governors. It finds that these public representatives often simultaneously serve on the boards of corporate financial intermediaries, giving rise to conflicts of interest between loyalties to market participants and industry lobbying groups and their roles as protectors of the public interest. To amplify the public's voice within these organizations, this Article proposes a different appointment process for the public representatives serving within self-regulatory organizations and calls for increased transparency and improved oversight.
In "Crony Politics Of Congress Wants Crony Regulation Of Investment Advisers" (Forbes.com by Bill Singer / June 4, 2012)2. FINRA's Industry GovernorsThe independence of FINRA's public governors matters because the industry already wields a powerful voice within FINRA, granting it influence over FINRA's priorities.' The industry seems unlikely to pursue investor protection at the expense of profitability. While excess financial services fees paid on account of conflicts of interest are costly to investors, these fees provide profits to FINRA's member firms. 112 Accordingly, industry representatives serving within FINRA would seemingly prefer revenue-maximizing arrangements."113One successful industry campaign in FINRA's 2015 Board of Governors shows how industry members may advance industry interests. While running to represent midsized firms on FINRA's Board of Governors, the commendably candid Brian Kovack of Kovack Securities stressed that his "main role would be to advocate for" stockbrokers. 114 When a follow-up question asked if he would represent investor interests, Kovack replied, "No. I would not."'115 After his remarks generated controversy, Kovack took a more diplomatic approach, stating that he looked "forward to working with the other members of the board and with FINRA's member firms to identify regulatory solutions that work both for investors and for the industry." 116 Kovack won his election with the endorsement of the Financial Services Institute."'117 Kovack has substantial familiarity with the levers of power at FINRA; he previously served on its interim board and as a member of the NASD Board of Governors." 118Mr. Kovack's presence raises questions about FINRA's culture and interest in protecting investors.119 One recent study found that, while only about 7% of all stockbrokers have markers on their record indicating possible misconduct, some firms have much higher concentrations of brokers with possible misconduct markers.120 At Kovack Securities, 13.13% of the brokers joined the firm after being fired by other firms.121 Tendencies toward fraud and exploitation may be contagious: when groups of troubled brokers cluster, their colleagues tend to absorb the cultural norms.122 One study found that associating with problem brokers increased the likelihood that even individual brokers without potentially problematic disclosures on their records will be associated with misconduct.123 Remarking on similar findings, two FINRA economists recently theorized that a heightened concentration of brokers with misconduct disclosures might serve "as an indicator of 'compliance culture"' at a particular firm.124 The high rate of disclosures may indicate that Kovack Securities' institutional culture does not place as much value on compliance as other firms. A unanimous 2010 arbitration award provides additional support for this inference: the panel ordered Kovack Securities to pay $200,000 in punitive damages to an investor because of the "apparent lack of any system of supervision" at the firm.125 From his position on FINRA's Board of Governors, Mr. Kovack may be able to influence the organization's priorities.While not all industry-affiliated governors share Mr. Kovack's unique background, the need for independent public representatives remains. Given FINRA's structure, it should be assumed that the industry will use FINRA's regulatory apparatus to pursue its own objectives.=====111. For example, FINRA's bylaws provide for substantial industry representation on the board. FINRA BYLAWS, art. VII, § 4(a), ("[T]he Board of Governors shall consist of ... (iii) a Floor Member Governor, an Independent Dealer/Insurance Affiliate Governor and an Investment Company Affiliate Governor and (iv) three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors.").112. See Judge, supra note 21, at 577 ("Because fees are revenue to the intermediaries to whom they are paid, intermediaries prefer laws, norms, market structures, and other institutional arrangements that entail higher, not lower, transaction fees.").113. See id. ("Moreover, intermediaries often have expertise and other strategic advantages that enable them to affect the processes through which institutions evolve in self-serving ways.").114. Ann Marsh, FINRA Candidate Says He'd Represent Firms, Not Investors, FIN. PLANNING (July 6, 2015), http://www.financial-planning.com/news/finra-candidate-says-hed-represent-firms-notinvestors.115. Id.116. Ann Marsh, Newly Elected FINRA Leader Raises Fiduciary Hackles, FIN. PLANNING (Aug. 3, 2015), http://www.financial-planning.com/news/newly-elected-finra-leader-raises-fiduciary-hackles.117. See Karen Demasters, Brian Kovack 'Dissident' Candidate For FINRA Board, Gets FSI Endorsement, FIN. PLANNING (July 6, 2015), http://www.fa-mag.com/news/brian-kovack--dissidentcandadate-for-finra-board-of-govemors-22334.html (reporting Financial Services Institute Endorsement); Megan Leonhardt, Reformers Win Seats on FINRA Board, WEALTH MGMT. (July 30, 2015), http://wealthmanagement.com/industry/reformers-win-seats-finra-board ("Kovack and Romano, both owners of brokerages, campaigned to be elected with a similar messages: Stop antagonizing smaller firms.").118. FINRA Announces Interim Board of Governors to Serve Until Annual Meeting for Board Elections, FINRA (Aug. 2,2007), https://www.finra.org/newsroom/2007/finra-announces-interim-boardgovernors-serve-until-annual-meeting-board-elections ("Brian Kovack, President of Kovack Securities Inc. and a former member of NASD's Board of Governors, appointed by the NASD as an industry representative. Kovack will serve only on the Interim Board.").119. Financial regulators have begun to pay an increasing amount of attention to the culture of financial services firms because it drives organizational behavior. See Nizan Geslevich Packin Benjamin P. Edwards, Regulating Culture: Improving Corporate Governance with Anti-Arbitration Provisions for Whistleblowers, 58 WM. & MARY L. REv. ONLNE 41 (2016), http://wmlawreview.org/sites/default/files/Packin%20%26%20Edwards-Final.pdf (corporate culture has emerged as a regulatory priority in the aftermath of the 2008 financial crisis).120. See Mark Egan et al., The Market for Financial Adviser Misconduct (Feb. 2016) https://www.chicagobooth.edu/-/media/B76C8 1EFE39B4EDB9A4B4D8B34DOBOF7.pdf (working paper).121. Craig McCann et al., How Widespread and Predictable is Stock Broker Misconduct, SEC. LITIG. CONSULTING GROUP 32 (June 2016), http://www.slcg.com/pdf/workingpapers/McCann%20Qin%20and%2OYan%2Oon%2OBrokerCheck.pdf122. See Stephen G. Dimmock et al., Is Fraud Contagious? Co-Worker Influence on Misconduct by Financial Advisors 4 (July 10, 2017), https://papers.ssm.com/abstract-2577311 (unpublished manuscript) ("Controlling for merger-firm fixed effects and using changes to an advisor's co-workers due to a merger, we show that an advisor is 37% more likely to commit misconduct if his Introduced Branch co-workers have a history of misconduct.").123. Id.124. One FINRA study found that investor risk rises when a firm has a high concentration of brokers with potential misconduct markers on their records. See Hammad Qureshi & Jonathan S. Sokobin, Do Investors Have Valuable Information About Brokers?, 4 (Aug. 20, 2015), https://papers.ssm.com/abstract-2652535 ("[W]e find that [harm associated with coworkers] leads to an economically meaningful increase in the overall power to predict investor harm, in the context of our model.").125. Tarrant v. Kovack Sec Inc., Arb. No. 10-03532, at 2 (FINRA Feb. 13, 2012) ("The situation is more egregious given [that Kovack Securities] was aware the broker had been terminated from another firm due to unreported and unapproved outside activities.").
All of you public investors and industry reformers catch that? FSI has its hooks into FINRA. The group and the SRO have an understanding. The trade group has someone on FINRA's Board and another 20 folks on local committees. A cynic might wonder whether those FINRA seats were incentives or rewards but, hey, who knows how many devil's bargains are made everyday on Wall Street? Why just focus on this unsettling bit of boasting by a trade group?In desperate need of effective Wall Street regulation, Representatives Bachus and McCarthy have launched a bipartisan effort to put FINRA into play as an expanded regulator with jurisdiction over a larger membership. At the very least, one would expect some push-back from an industry that is targeted for a new version of Congressionally mandated regulation (as if Congress has had any laudable results tinkering with the financial services industry). Instead of any meaningful reservations, FSI "pledges" to its members that the trade group "will stop at nothing to try and ensure the . . . least intrusive regulator for RIAs . . ." Given the trade group's support for FINRA, that's quite the dubious accolade: The least intrusive regulator!
https://www.finra.org/sites/default/files/fda_documents/2018060177801%20Kovack%20Securities%20Inc.%20CRD%2044848%20AWC%20gg.pdfFor 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, Kovack Securities Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Kovack Securities Inc. has been a FINRA member firm since 1998 with 380 registered representatives at 230 branches.. In accordance with the terms of the AWC, FINRA imposed upon Kovack Securities Inc. a Censure, $210,000 fine, and an undertaking to certify the establishment/implementation of supervisory systems/procedures addressing the AWC. The AWC alleges in part that:
In 2015, former registered representative MK joined KSI. His Uniform Termination Notice for Securities Industry Registration (Form U5) filed by a firm with which he was associated before KSI stated that he had been terminated earlier in 2015 for "accepting blank, signed forms from customers in violation of firm policy, short term trading in mutual funds and other customer account trading activity under firm review."2From March 2015 to May 2017, while registered with KSI, MK engaged in a pattern of short-term trading of A share mutual funds in eleven accounts of eight customers, including five seniors. 3 MK bought and sold A share mutual funds in those accounts, using the proceeds from the sales to purchase one or more equities, and then selling the equities after a few months to repurchase A share mutual funds. In total, MK recommended over $2.1 million in A share mutual fund purchases to the eight Kovack customers after previously recommending sales to the same customers in the prior year. This activity caused the customers to incur unnecessary sales charges. During the instant investigation, KSI voluntarily made restitution to the affected customers.KSI's supervisory system was not reasonably designed to address short-term trading of A share mutual funds in brokerage accounts. KSI relied primarily on one person to conduct daily, manual reviews of trading activity in the accounts for all its registered representatives, which at the time numbered over 300. Such daily reviews were not reasonably designed to identify short-term mutual fund switches, which had purchases and sales months apart. KSI did not provide the trade reviewer with support staff to assist with manual trade reviews, or automated exception reports that could assist with a review for mutual fund switches.4KSI also did not respond reasonably to red flags of unsuitable mutual fund trading in MK's customers' accounts. First, MK's Form U5 from his prior firm-which indicated that he had been terminated while under review for short term mutual fund trading-was a red flag that MK represented heightened risk for unsuitable mutual fund switching. However, the firm did not impose any heightened supervision of MK or the trading activity in MK's customers' accounts. In addition, in November 2016, the trade reviewer identified a short-term trade of A share mutual funds in a senior customer's account serviced by MK. The firm cancelled the trade, but it did not review MK's trading activity or take additional action to address the issue. As a result, additional unsuitable switches by MK occurred after November 2016.Therefore, Respondent violated FINRA Rules 3110 and 2010.= = = = =Footnote 2: MK was barred by FINRA in 2017 for his failure to cooperate in its investigation.Footnote 3: KSI customers could purchase mutual funds through their brokerage accounts or directly from the fund companies. The trading at issue herein involved purchases through brokerage accounts.Footnote 4: Although the trade reviewer did on occasion conduct a manual retrospective review to identify potential switches, his lookback period was only 30 days until mid-2016, when it was changed to 90 days and later to a longer period of time. Even after mid-2016, the firm's retrospective review was not reasonably designed to identify the switches in MK's customers' accounts, because of the trade reviewer's lack of resources, as noted above.
Bill Singer's Comment:Not noted in the FINRA AWC is that from September 2015 through August 2021, Kovack Financial Companies Chief Executive Officer/Co-founder Brian Kovack, Esq sat on FINRA's Board of Governors. https://www.finra.org/about/governance/finra-board-governors/brian-kovackGiven that the FINRA AWC cites
- misconduct from March 2015 to May 2017; and
- Kovack's FINRA Board of Governors tenure overlapped those years; and
- it is only in 2022 that FINRA finally published the regulatory settlement and imposed its sanctions,
one would think that, at a minimum, the self-regulatory-organization would feel compelled to reference Brian Kovack's Board role during the relevant times covered in the AWC. Such a reference would only be made to acknowledge the potential conflict and to set forth the steps taken by FINRA to ensure the integrity of its investigation and ensuing settlement.I have raised this same concern when FINRA settlements involve FINRA Large Member Firms and reiterate the issue in order to prompt FINRA to pursue more transparency; see: "FINRA Censures And Fines Securities America Over Outsourced Onboarding" (BrokeAndBroker.com Blog / March 2, 2021)https://www.brokeandbroker.com/5714/finra-securities-america/Clearly, I think it a "Better Practice" for all FINRA settlements to disclose when alleged misconduct occurred at a member firm during times when an employee/agent/officer of said member firm sat on FINRA's Board or its various committees. Moreover, if and when necessary, FINRA should preclude for appropriate periods of time further service from representatives of such member firms if the cited misconduct rises to a level where such a sanction would be appropriate in the public's and the industry's interest.
According to the SEC's order, contrary to its disclosures and internal policies, KAI failed at various times over several years to review the accounts of clients in its wrap fee program to determine whether the program remained suitable for clients. The order further finds that, as a result of this conduct, certain KAI wrap clients remained in the wrap fee program despite the lack of activity in their accounts. In addition, the order finds that KAI failed to adequately disclose to wrap clients that they would be charged for certain transaction costs, in addition to the wrap program fee.The SEC's order finds that KAI willfully violated the antifraud and compliance provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC's findings, KAI consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $166,239, prejudgment interest of $33,274, and a civil money penalty of $700,000. KAI also agreed to distribute the funds to harmed clients and to comply with certain undertakings.
[K]AI has been registered with the Commission as an investment adviser since 2004. KAI is a wholly-owned subsidiary of Kovack Financial, LLC, and offers discretionary and non-discretionary asset management services. According to its Form ADV filed April 12, 2022, as of December 31, 2021 KAI had assets under management of approximately $3,514,635,392 which it managed on a discretionary basis and $1,032,646,181 which it managed on a non-discretionary basis.
10. KAI failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder:
a. Reviewing Wrap Accounts for Inactivity. KAI's compliance policies and procedures required KAI to conduct reviews of client accounts, including for "volume of trading," but did not provide adequate procedures for conducting such reviews. Beginning in at least 2015, KAI failed to implement these policies and procedures. After the Commission's Division of Examinations began an examination of KAI in 2017, KAI conducted account reviews for the first time in almost two years. After the 2017 examination, KAI failed to adopt reasonably designed policies and procedures concerning inactive advisory account monitoring and review consistent with its representations to wrap clients. Among other things, KAI's policies and procedures provided inadequate details or parameters to IARs or their supervisors concerning how to assess whether a wrap account was and remained suitable for a client. In addition, KAI did not have policies and procedures in place reasonably designed to determine whether inactive wrap accounts were appropriate for conversion to a brokerage or other arrangement.b. Accuracy of Disclosures. KAI failed to adopt written policies and procedures regarding the accuracy of its disclosures concerning (i) reviewing for inactivity in wrap accounts, and (ii) transaction costs to wrap clients that could accrue in addition to the wrap program fee.c. Annual Compliance Reviews. KAI failed to complete its required annual compliance review for at least the years 2012 through 2015.
[T]he broker was employed for over two and one-half years by Respondent and there was no evidence of any compliance reports. The situation is more egregious given the Respondent was aware the broker had been terminated from another firm due to unreported and unapproved outside activities. Even though the broker disclosed an outside activity shortly after being employed by Respondent, there was no evidence of any type of supervision or monitoring system to ensure the outside activity was conducted properly. Additionally, the Claimant was never notified that the broker was terminated and continued to receive financial statements from Respondent listing the broker as the financial adviser. . .
This matter originated from an Enforcement review of unsuitable mutual fund trading at another FINRA member by a former registered representative who then joined KSI.
As such, FINRA admits that it knew that Kovack Securities had terminated its stockbroker "MK" in 2015, and, further, FINRA was on notice of the misconduct cited by the employer in the Form U5. Moreover, FINRA barred MK in 2017 after he failed to cooperate with the regulator's investigation.In 2015, former registered representative MK joined KSI. His Uniform Termination Notice for Securities Industry Registration (Form U5) filed by a firm with which he was associated before KSI stated that he had been terminated earlier in 2015 for "accepting blank, signed forms from customers in violation of firm policy, short term trading in mutual funds and other customer account trading activity under firm review."2= = = = =Footnote 2: MK was barred by FINRA in 2017 for his failure to cooperate in its investigation.
FINRA's Board is currently composed of 19 industry and public members, with 10 seats designated for industry members, 11 seats designated for public members and one seat reserved for FINRA's Chief Executive Officer.Seven of the industry governor seats-three small firm governors, one mid-size firm governor and three large firm governors-are designated for individuals associated with FINRA members that corresponds to each firm size. A small firm employs at least one and no more than 150 registered persons, a mid-size firm employs at least 151 and no more than 499 registered persons and a large firm employs 500 or more registered persons.The remaining industry seats are reserved for one Floor Member Governor, one Independent Dealer/Insurance Affiliate Governor and one Investment Company Affiliate Governor.