FINRA Sanctions Personnel for Compliance Failures

A compliance advisor working for City Securities Corporation (“City Securities”) has agreed to a Letter of Acceptance, Waiver and Consent (AWC) in a FINRA enforcement case alleging deficiencies in the way the advisor performed his compliance duties at the broker-dealer.  John Walter Ruggles, who first became registered in 1993 and became associated with City Securities in May 2014, was charged with failing to generate monthly Municipal Continuing Disclosure Reports (MCDs), which are required in order to comply with the Municipal Securities Rule Making Board’s (MSRB) disclosure requirements.  More specifically, among Ruggles’ tasks were to populate the MCDs with transaction data on behalf of City Securities’ customers and to email the data to the private client group, who would then routinely use the information contained in Ruggles’ emails to prepare customer satisfaction letters to City Securities’ clients regarding recent municipal bond trading activity.

The AWC alleges that Ruggles’ supervisor confronted Ruggles with the fact that he had not received the MCDs due for February 2015, and asked Ruggles to produce documentation showing that Ruggles had performed the tasks going back to June 2014.  Ruggles provided six printed emails to his supervisor in response to the supervisor’s request.  Those emails contain the trade details that were supposed to have been included in the MCDs.  The supervisor, however, attempted to verify the data contained in Ruggles’ printed emails, but in investigating the situation found (1) that City Securities’ email backup files did not contain any of the emails that Ruggles provided, (2) that several of the execution dates referenced on the bond trades in the emails were different from the actual execution dates as reflected in the transaction data, (3) that for a period of approximately five months, the firm’s compliance system showed that Ruggles had not opened and viewed the MCDs from which he was supposed to have taken the data, and (4) that the falsified emails contained erroneous dates in the subject lines.

FINRA charged Ruggles with violating FINRA Rule 2010 and 4511, Section 17(a) of the Exchange Act and Rule 17(a) -4.  Ruggles agreed to a $5,000 fine and a fourteen month suspension from association in any capacity.

In another case in which sanctions were imposed against compliance personnel, Brookstone Securities and its Chief Compliance Officer, David Locy, were fined by FINRA’s National Adjudicatory Counsel for compliance failures relating to the recommendation and sale of collateralized mortgage obligations (CMOs).  After concluding that the firm’s other personnel made misrepresentations and unsuitable recommendations to firm clients, the NAC also found that the firm, acting through Locy, failed to review customer discretionary accounts at frequent intervals, thereby failing to reasonably supervise the firm’s activities.  Locy was fined $25,000, barred from association in any supervisory capacity and suspended from association with any FINRA member in any capacity for two years.

Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.