Category Archives: Broker-Dealers

Are You Considering Breaking Away?


The number of advisers considering breaking away from a traditional broker-dealer business model is on the rise. According to the latest research from Echelon partners, last year alone, more than 400 teams broke away from their broker-dealers to go independent, with over 15% becoming their own RIAs.1

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WORM Deficiencies: Are Your Electronic Records Safe?


As part of FINRA’s ongoing efforts to crackdown on cybersecurity failures, the brokerage industry’s self-regulatory organization issued $14.4 million in fines to a dozen firms – including companies in the Wells Fargo & Co. and RBC Capital networks, RBS Securities Inc., SunTrust Robinson Humphrey Inc., LPL Financial, Georgeson Securities Corp. and PNC Capital Markets – for deficiencies related to their cybersecurity programs.

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FINRA Fines Five Firms for Failure to Waive Mutual Fund Charges

Fines PaidFive Broker-Dealers Ordered to Pay $18 Million in Restitution for Failing to Wave Class A Mutual Fund Share Charges

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Oppenheimer Charged with Violating Securites Laws Related to Penny Stock Transactions


The Securities and Exchange Commission  has charged broker-dealer Oppenheimer & Co. (“Oppenheimer”) with two courses of misconduct relating to its customer, Gibraltar Global Securities (“Gibraltar”). Oppenheimer has admitted to the wrongdoing which resulted in a $10 million fine. Oppenhiemer was also fined $10 million by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

The SEC’s order instituting a settled administrative proceeding states the first course of misconduct involved Oppenheimer “aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without an applicable exemption from the broker-dealer registration requirements of the federal securities laws.” Oppenheimer executed billions of shares of penny stocks for Girbraltar, a brokerage firm based in the Bahamas, which was not registered to conduct business in the United States. The SEC found that Oppenheimer failed to file Suspicious Activity Reports (“SARs”), violated tax laws and failed to recognize the resulting liabilities and expenses as part of their books and records requirements.

The second course of misconduct describes Opphenheimer engaged in the sale of unregistered penny stocks on behalf of another customer. The order also describes a failure to respond to red flags, questioning the exemption status of the sales along with a failure to reasonably supervise “with a view toward detecting and preventing violations of the registration provisions” on the part of Oppenheimer.

According to a FinCEN news release, Oppenheimer willfully violated the Bank Secrecy Act by failing to establish and implement an adequate anti-money laundering program, failing to conduct adequate due diligence on a foreign correspondent account, and not complying with requirements under Section 311 of the USA PATRIOT Act.

Andrew J. Ceresney, Director of the SEC’s Division of Enforcement stated that “These actions against Oppenheimer demonstrate that the SEC is fully committed to addressing lax AML compliance programs at broker-dealers through enforcement action.  The sanctions imposed on Oppenheimer, which include admissions of wrongdoing and $20 million in monetary remedies, reflect the magnitude of Oppenheimer’s regulatory failures.”

For more information on this and other related subjects, please contact us at  or (619) 298-2880

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Regulators Continue Focusing on Anti-Money Laundering Violations

Recent settlements continue to show how regulators are cracking down on Anti-Money Laundering (“AML”) violators of all shapes and sizes.  This week HSBC, Europe’s largest bank by market value, agreed to a settlement after facing accusations it transferred funds through the U.S. from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions.  The settlement – $1.9 billion, or 9% of the company’s 2012 profits, is the largest penalty ever imposed on a bank.  Additionally, another British Bank – Standard Chartered PLC, signed an agreement with New York regulators this week for $340 million to settle a money-laundering investigation involving transactions it undertook with funds from Iran.

Pursuant to the Bank Secrecy Act (“BSA”) and the USA Patriot Act (“Patriot Act”), many financial services firms are required to institute AML programs in order to detect and help prevent money laundering.  It is necessary for these firms to identify each client, conduct a thorough evaluation by gathering important information and documentation and then making a determination of whether or not the client seems legitimate. This process occurs before engaging in any business practices with the client and therefore avoids “willful blindness” issues.

While organizations such as The Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) have recently revealed they are working on a proposed rule that would require investment advisers to implement AML compliance programs; currently the Investment Adviser’s Act of 1940 does not require investment advisers to establish such programs.  However, with recent trends in regulation, investment advisers would be wise to consider their fiduciary duty and develop the following:

  • A systemic process for reviewing of all incoming accounts, including a customer identification program, to ensure compliance with AML regulations;
  • Designation of an AML Officer who is responsible for daily coordination of AML compliance;
  • Mandatory annual training for personnel; and
  • Independent annual testing of AML compliance

For additional information about anti-money laundering laws and regulation, or any other compliance concern, please contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or (619) 298-2880.

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BD Corner: California Appeals Court Clears Path for Greater Expungement

Last month, the California Court of Appeal in San Francisco issued an opinion in Lickiss v. Financial Industry Regulatory Authority explicitly permitting courts across the state to use an equitable balancing test in order to determine whether a broker’s CRD record can be expunged. The broker in the case, Edwin Lickiss, defeated FINRA’s attempts to have his expungement case thrown out of court after 18 months of litigation. Lickiss is seeking to expunge 17 arbitration matters stemming from a REIT investment he recommended to clients from 1987 to 1991 that ultimately went south, and one FINRA rule violation that was resolved in 1997.

FINRA argued successfully in the trial court that the standard set forth in FINRA Rule 2080(b)(1), rather than the court’s inherent equitable powers, governed Lickiss’s expungement petition. That Rule states that a FINRA member or associated person (like Lickiss) that petitions a court for expungement relief, or seeks judicial confirmation of an arbitration award containing expungment relief, must name FINRA as a party unless FINRA waives that obligation as a result of an “affirmative judicial or arbitral findings that: (A) the claim, allegation or information is factually impossible or clearly erroneous; (B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (C) the claim, allegation or information is false.” The relief sought by Lickiss did not fall within this narrow provision; rather, Lickiss argued the court should use its equitable power to remove the disclosures because they “occurred anciently,” his “regulatory record has long since been and remained clean,” and because the “material sought to be expunged was overwhelminghly caused by the failure of a single investment security which Petitioner brokered for nothing more than ordinary commissions and over which Petitioner had no control or influence.”

In rejecting FINRA’s argument that Rule 2080(b)(1) provides the standard for the trial court’s determination of whether Lickiss’s record could be expunged, the appellate court described Rule 2080(b) as “a procedural rule that does not provide any substantive criteria as to when expungment would be appropriate.” Permitting Lickiss’s petition to proceed, the appellate court confirmed an equitable balancing test should be used—i.e., weighing the equities favoring expungement against the detriment to the public should expungment be granted. The appellate court stated that the trial court’s use of the “very narrow, rigid legal rule to assess the legal sufficiency of Lickiss’s petition—a choice that closed off all avenues to the court’s conscience in formulating a decree and disregarded basic principals of equity—was nothing short of an end run around equity.”

While he may still face an uphill battle in convincing the trial court to expunge his record under the balancing standard adopted by the court of appeals, Lickiss and other brokers seeking expungment now have that chance.

For further information about expungment or other securities or compliance concerns, please contact the author at or (619)298-2880.

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BD Corner: New Suitability Rule Takes Effect

FINRA recently published Regulatory Notice 12-25 to provide broker-dealers with additional guidance on the SRO’s new suitability rule, which took effect on July 9th.  The new suitability standards under Rule 2111 were approved by the SEC in November, 2010. They were initially scheduled to take effect on October 7, 2011, but the deadline was extended in response to requests from the industry for more implementation time. The recent release responds to requests from FINRA member firms for additional direction on issues they identified during the implementation process. The release also provides useful information concerning the implementation of a risk-based approach to documentation of suitability compliance and the scope of appropriate information gathering from clients.

The new suitability Rule makes absolutely clear that a broker-dealer’s suitability obligations include firmly understanding both the customer and the products recommended to customers. The Rule codifies and clarifies the three main suitability obligations of broker-dealers and their registered representatives, previously discussed only in case law:

  1. Reasonable-basis suitability –brokers must perform reasonable diligence to understand the nature of the recommended security, including its potential risks and rewards and whether it would be a suitable investment for any investor.
  2. Customer-specific suitability – this obligation looks to the customer’s investment profile. The broker must have a reasonable basis to believe that the recommended security is suitable for the particular customer.
  3. Quantitative suitability – requires a broker who has actual, or de facto, control of a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and/or unsuitable for the customer.

The Rule also sets forth an expanded list of customer-specific factors that must be obtained and analyzed by firms as part of their suitability inquiry, including age, investment experience, time horizon, liquidity needs and risk tolerance.

For additional information concerning the new suitability rule please contact Sarah Weber at or (619)298-2880.

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