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Review of FINRA Enforcement Actions Reported for Quarter 1 of 2021

Posted by Joel Beck | Mar 24, 2021 | 0 Comments

Review of FINRA Enforcement Actions Reported for Quarter 1 of 2021 

Each month, FINRA publishes a report listing monthly disciplinary actions.  These are not current for that month, but generally about two months old.  For Quarter 1 of 2021, the January monthly report lists actions finalized in November 2020, the February report lists actions from December 2020, and the March report identifies cases from January 2021.  Keep in mind that it often takes some time for FINRA to investigate a case and then work its way through to a final resolution where formal action is involved.  When you see the case number, the first four numerals identify the year that the examination/investigation started.  So, as you see when reviewing the reports, it is very common to see cases resolved now that began a year ago or more.  As such, you can't view these reports as insightful as to what rules are being violated now (or in the recent few months) by registered and associated persons. But it certainly does show what things are on FINRA's radar and what types of cases are leading to formal enforcement action.

As always, there are numerous cases of persons being barred for not cooperating with FINRA in their investigation, and thereby violating Rule 8210.  There are also a number of cases involving conversion of funds; those cases result in a bar as well, and generally aren't important to most people in the business, as they won't ever face an action for conversion of funds.  Putting those aside, here's what I see when reviewing the cases reported for Q1 of 2021 that may be of interest to financial advisors (FAs) and compliance officers: 

  • U4 violations:  This quarter is no exception to the general rule that U4 cases are routine and a mainstay of the enforcement program.  Unfortunately, they also result in some pretty draconian sanctions if FINRA makes a finding that someone “willfully” failed to report something on their Form U4. In those cases where a willful finding is made, the person becomes statutorily disqualified from being associated with a broker-dealer. I've discussed U4 issues and the statutory disqualification extensively, and you can find more on U4 matters on the blog and our YouTube channel (
  • Outside business activities: I counted about 9 cases involving undisclosed OBAs (outside business activities) of various types.  These generally bring about a suspension and a fine, and obviously make it more difficult to land positions at other firms.  FAs should always ensure that they have properly and timely disclosed any OBAs – even ones where revenue is not earned – to help avoid regulatory problems in this area.
  • Unsuitable recommendations/unsuitable trading:  For this quarter, it appears FINRA charged about 10 people with making unsuitable recommendations or engaging in unsuitable trading.  This is a reminder for FAs that it is always a good idea to document recommendations and the rationale for those recommendations.  That way, if later second guessed by the client or a regulator, your contemporaneous notes can aid in your defense.
  • Misuse of Confidential Information: I counted five cases involving misuse of confidential information, charged under either the SEC's Regulation S-P or FINRA Rule 2010 (or both), including a couple of cases of note discussed below.  This should serve as a good reminder to FAs to ensure that they are safeguarding information and that they are not taking it with them without authorization in a transition to another firm. 

Here are a few cases of note against individual financial advisors that are worthy of review:

Misuse of Info. / Sale of Customer Information

In January 2021, FINRA reported a settlement of an enforcement case (2019062357402) against an individual for conduct that occurred back in 2012-2013.  This was settled through an AWC and not litigated, but it is indeed odd to see a case that reaches that far back in time.  In summary, the rep. was anticipating leaving his firm and removed nonpublic personal information for about 500 customers of the firm.  He left and joined another firm, and then met with a representative of another firm who had tried to recruit him to that organization.  The rep. sold the other individual information on about 250 of the customers, providing the customers' names and account balances, but not their account numbers.  The rep. was paid $7,500 for this information.  FINRA charged the rep. with a violation of SEC Regulation S-P and FINRA Rule 2010, and suspended him for 5 months, fined him $5,000 and ordered him to disgorge the $7,500 he received, plus interest. This case stands for the prospect that FAs should be careful about any nonpublic client information, even when it does not include SSNs, DOBs, account numbers and the like.  The write up of this case also leaves unanswered some legal questions due to the timeline of this case and the age of the activity, but since the advisor at issued settled, those issues did not have to be raised and resolved at a hearing. 

In another Regulation S-P case, FINRA suspended an advisor for 10 business days and fined him $5,000 after making findings that he removed non-public personal customer information from his firm without the consent of his clients.  He was preparing to move to another firm, and he faxed his new firm client profile information to make it easier to open new accounts for his clients at the other firm.  The information shared included account numbers, investment objectives, risk tolerances, account balances (FINRA Case #2019062873001).

And one more – in another case (FINRA Case #2018060447501), FINRA suspended an advisor 10 business days and fined him $5,000 after finding that he caused his firm to violate Reg. S-P by taking non-public personal information of his customers to another firm without consent.

All of these cases are a good reminder to be careful with nonpublic client information. 

Improper Communications with Clients

FINRA reported an AWC with a representative who used his personal cell phone for business and securities-related text messages with customers without providing copies to his firms.  Therefore, he caused his firms to fail to preserve the communications.  FINRA made findings that he communicated about orders, specific securities and news, account profits and losses, and also made exaggerated and misleading statements to a customer.  He was fined $10,000 and suspended for 4 months (FINRA Case #2019064516901).  Be careful about communications with clients and ensure you do it in conformity with your firm's procedures. 

Forgery/Falsification of Documents and Settling Away

One more case caught my eye, and it involved a string of issues.  In case 2019062300001, FINRA suspended an advisor for four months and fined him $5,000.  Here's a summary of the story in the AWC:  The advisor forged a couples' signature on an insurance policy application.  Later, when the policy is approved, he forged more signatures, and also falsely certified he delivered the documents to the customer.  The premiums were apparently deducted from the customer's investment or bank account, and later, when the customer realized this, he complained to the advisor that the policy and payments were not authorized.  The advisor settled the complaint with the customer by repaying the customer $10,000, without informing his firm of this action or of the existence of the complaint.  Later, the firm learned of this and conducted an investigation, during which the advisor falsely denied forging the documents.  FINRA found that the advisor believed he had authorization to sign the clients' names from another rep. in his office, but that his conduct violated Rule 2010.  He also violated Rule 2010 by settling the customer complaint away from the firm.  The advisor also had his insurance license with the state revoked and he was fined $1,000 by the insurance commissioner as well. 

In all, FINRA's imposition of a four-month suspension might be viewed as generous here, given the facts alleged and the compounding of problems.  Regardless, this case is a good reminder of things not to do and demonstrates how what may have been viewed as a permissive action (signing someone's name believing there was authorization) can compound into much larger problems.  Although he was not barred by FINRA, I suspect that this advisor's career in the financial services field is effectively ruined as it will be very challenging to find a firm willing to take a chance on him with this on his record, in addition to possible state concerns with respect to registration and licensing. 

About the Author

Joel Beck

Joel Beck founded The Beck Law Firm, LLC in 2007. His firm focused on business law and estate planning needs of clients, two areas that he was drawn to based upon personal and business experiences in his life, including a ten-year career at NASD (now known as FINRA).


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