Monthly Archives: February 2014

In February 2014, FINRA announced that Jefferies LLC submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $50,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it employed a statutorily disqualified individual in a non-registered capacity and permitted the individual to remain associated with the firm for eight years.

The findings stated that the individual was statutorily disqualified at the time of his hire and remained so throughout his employment with the firm. The individual failed to disclose his statutory disqualification to the firm, and the firm’s initial review of the individual’s background was incomplete and did not reveal that the individual had been barred and therefore was statutorily disqualified from associating with the firm in any capacity. The individual remained associated with the firm in a non-registered capacity until the firm terminated his employment after becoming aware that he was statutorily disqualified in connection with its review of operations professionals for the then newly established FINRA Series 99.

In February 2014, FINRA announced that BB&T Securities, LLC f/k/a Clearview Correspondent Services, LLC had submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $300,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that its affiliate and former member firm, Scott & Stringfellow LLC (S&S), with which it has since merged, effected sales of unregistered securities in contravention of Section 5 of the Securities Act of 1933.

The findings stated that the firm participated in the sale of approximately 242 million shares of unregistered stock of low-priced securities on behalf of issuers, which generated proceeds of approximately $537,000. The securities were not subject to a registration statement. The findings also stated that despite certain questionable circumstances surrounding the sales, such as the substantial deposits of the same low priced securities in related accounts at the firm followed shortly by liquidation of the shares, S&S failed to conduct a searching inquiry to ensure that the sales did not violate Section 5 of the Securities Act.

The findings also included that S&S failed to adequately enforce its Written Supervisory Procedures regarding the sales of unregistered securities. S&S did not have any documentation to show that it performed any reviews or asked the questions that the firm’s WSPs mandated concerning the subject securities before they were sold. In fact, the firm did not conduct, as its WSPs required, sufficient inquiries on any of the physical stock certificates that it received in the customer accounts, even though there were several “red flags,” some of which were identified in the WSPs. These red flags included customers opening new accounts and delivering physical certificates representing a large block of thinly traded or low-priced securities, and the customers having a pattern of depositing physical certificates, immediately selling the shares and then wiring the proceeds of the resale. The firm’s brokers who serviced the accounts in question did not conduct any searching inquiries and instead assumed that the firm’s clearing firm was supposed to ensure that all securities deposited were available to sell.

FINRA found that S&S failed to implement an adequate anti-money laundering (AML) program designed to detect and cause the reporting of suspicious activity. The firm’s AML program failed to adequately address potentially suspicious activity related to the deposits and liquidations of unregistered low-priced securities before or at the time the liquidations commenced. FINRA also found that S&S failed to adequately respond to red flags that were apparent at the time sales began, did not conduct appropriate due diligence on the underlying clients and the issuers before proceeding with further transactions, and failed to review whether the trades represented potentially manipulative activity on the market. The firm’s AML program eventually detected and stopped the questionable trading activity. Nevertheless, the activity was allowed to continue for approximately four months before the firm stopped it. In addition, FINRA determined that BB&T and S&S failed to consistently send letters to customers notifying them of a change in address made to their account records, due to a problem with the automated systems the firm utilized.

Moreover, FINRA found that S&S failed to maintain sufficient records of its research analysts’ public appearances made to ensure that they made disclosures NASD Rule 2711(h) required. As a result, the firm’s records did not show what disclosures were made with these public appearances and, most importantly, whether any disclosures complied with NASD Rule 2711(h).

In February 2014, FINRA announced that Deutsche Bank Securities Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $40,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it permitted two statutorily disqualified persons to associate with the firm.

The findings stated that although the firm had written pre-employment screening policies and procedures, it did not implement and enforce them with respect to non-registered employees transferring from another firm-related entity. The firm did not fingerprint the individual and other non-registered transferees upon their hire, nor did it conduct the requisite background checks to ensure that it was not employing a person subject to a statutory disqualification.

The findings also stated that the individual had become employed with a firm affiliate, which conducted a background check and submitted his fingerprints to the appropriate authorities. The individual completed an employment application on which he indicated he had been employed with a FINRA/New York Stock Exchange (NYSE)-regulated firm but did not disclose he had been terminated from this broker-dealer for misappropriation of customer funds and that there was an open NYSE investigation into this matter. The individual did not subsequently disclose to the affiliate that shortly after his hire, he was barred by the NYSE and was thus subject to a statutory disqualification. A firm staff member alerted the individual’s supervisor that the individual had been barred and the individual’s employment was terminated.

The findings also included that a subsequent review of firm non-registered employees disclosed a second person was subject to statutory disqualification because of a criminal conviction. As with the first individual, the firm did not conduct a background check or submit her fingerprints to the Federal Bureau of Investigation (FBI).