On March 12, 2014, FINRA announced that it had sanctioned and fined two firms — Triad Advisors and Securities America — $650,000 and $625,000, respectively, for failing to supervise the use of consolidated reporting systems resulting in statements with inaccurate valuations being sent to customers, and for failing to retain the consolidated reports in accordance with securities laws. In addition, Triad was ordered to pay $375,000 in restitution.
A consolidated report is a single document that combines information regarding most or all of a customer’s financial holdings, regardless of where those assets are held. Consolidated reports supplement, but do not replace, official customer account statements. Both Triad Advisors and Securities America had a consolidated report system that permitted their representatives to create consolidated reports, allowing them to enter customized asset values for accounts held away from the firm and to provide the reports to customers.
According to FINRA’s findings, for more than two years, Triad and Securities America failed to supervise hundreds of brokers, some of whom were creating and sending false and inaccurate consolidated reports to customers. Many of these consolidated reports contained inflated values for investments, some of which were in default or receivership. Moreover, at Triad, a number of consolidated reports sent to customers reflected fictitious promissory notes or other fictitious assets, which enabled two representatives to conceal their misconduct. Triad has paid restitution to some of the affected customers and FINRA has ordered Triad to pay restitution to the remaining affected customers.
In concluding these settlements, Triad Advisors and Securities America neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.