United States: FINRA Hearing Panel Fines Broker-Dealer for Misrepresentations and Supervisory Violations

A FINRA hearing panel fined and censured a New York State-based broker-dealer for supervisory failures and misstatements to companies about redemptions of financial obligation securities on behalf of a customer. Individually, the panel fined the company and a compliance officer of the company for Anti-Money Laundering (” AML”) and Bank Secrecy Act offenses about cent stock deals.

The hearing panel found that C.L. King and Associates, Inc. (” C.L. King”), through its financial obligation securities business, participated in a plan with a hedge fund that obtained terminally ill individuals (the “individuals”) to open joint brokerage accounts as “joint occupants with rights of survivorship,” and buy reduced business financial obligation securities with “survivor options.” The hedge fund participated in contracts with the individuals: in exchange for a charge, the individuals would transfer ownership rights to the properties kept in the brokerage accounts. Through C.L. King, the hedge fund had the ability to redeem the complete primary quantities of the bonds before maturity after the death of an individual. The hearing panel identified that C.L. King was needed to divulge to providers of the survivor bonds that the individuals were not useful owners of the accounts, and it cannot do so. In accordance with these claims and associated supervisory failures, the hearing panel found that C.L. King broke Securities Act Sections 17(a)(2) and (3), FINRA Rules 2010 and 3110, and NASD Rule 3010.

Unassociated to its financial obligation securities business, C.L. King carried out cent stock deals for 2 big customers. The hearing panel found that C.L. King and its AML compliance officer, Gregg Alan Miller, did not carry out a reliable or sensible AML compliance program, especially about cent stock deals, and cannot effectively “spot and examine” warnings that suggested possibly suspicious deals. The hearing panel identified that C.L. King and Mr. Miller cannot examine big deals, regardless of the truth that the companies of the stocks in question had created no profits, in addition to other signs of possible money-laundering activity. The hearing panel found that Mr. Miller and C.L. King breached FINRA Rules 2010 and 3310(a) and (b), and NASD Rule 3011(a) and (b).

To fix the charges, C.L. King was censured and purchased to pay an overall of $750,000. Mr. Miller was suspended from acting in a primary capability for 6 months and bought to pay an overall of $20,000.

Topic to an interest the FINRA National Adjudicatory Council (” NAC”), or an evaluation by the NAC, the choice will become last after 45 days.

Commentary/ Jodi Avergun

This case is another example of FINRA action versus gatekeepers and highlights the genuine effects for legal representatives, compliance officers, and other essential consultants if they stop working in their oversight tasks. SEC Chair Clayton also just recently revealed his intent to continue to stress individual duty and liability in SEC enforcement actions, and this FINRA action brings that program forward.