Articles Posted in Supervisory Failures

CL King & Associates

Publicly available records published by the Financial Industry Regulatory Authority (FINRA) and accessed on February 16, 2017 indicate that New York-based broker-dealer firm CL King & Associates has been sanctioned by FINRA in connection to alleged rule violations. Fitapelli Kurta is interested in hearing from investors who have complaints regarding C.L. King & Associates (CRD# 6183).

According to the firm’s BrokerCheck report, FINRA found that from January 1, 2014 until November 1, 2014, the firm failed to enforce procedures related to the “distribution of research between the Firms’s research and its trading and sales personnel,” and additionally that it failed to properly supervise the process by which research reports were distributed by the firm to its customers, contravening NASD Rule 3010 as well as FINRA Rules 5280(b) and 2010. Rule 5280 mandates the establishment, maintenance and enforcement of policies and protocols “reasonably designed to restrict the flow of information between research department and trading personnel” such that trading personnel do not use non-public advance knowledge to benefit the firm or anyone else. NASD Rule 3010, meanwhile, requires the establishment, maintenance and enforcement of supervisory systems reasonably designed to ensure compliance with relevant securities laws and rules.

According to FINRA’s findings, CL King employed roughly five analysts during the relevant period who together “covered approximately 80 subject companies in the restaurant, industrial, auto, consumer finance, and specialty retail sectors,” and though it had procedures in place to restrict information from flowing between those analysts and its trading personnel, “it did not enforce those procedures,” according to FINRA’s findings. The firm’s research department allegedly “routinely sent finalized copies of research reports to sales and trading personnel” before the firm had disseminated the research through its online platform. And though its written supervisory procedures required that research be “distributed to all accounts and other recipients” simultaneously, it allegedly failed to enforce this rule. FINRA’s findings state that the firm’s analysts “routinely” distributed finalized research reports, which had not been disseminated through the online platform, to firm trading and sales personnel, who then emailed these reports to certain firm customers, “chosen based on their determinations about which… were likely to be interested in receiving” them.

Raymond James Financial ServicesAccording to a release published by the Financial Industry Regulatory Authority (FINRA) on December 21, 2017, FINRA has sanctioned broker-dealer firm Raymond James Financial Services $2 million in connection to the firm’s alleged supervisory failures. Fitapelli Kurta is interested in speaking to investors who have complaints regarding investments made with Raymond James Financial Services.

FINRA’s findings state that during a nine-year period, Raymond James’ system for reviewing email communications suffered from significant flaws and allowed “millions of emails to evade meaningful review.” A consequence of this was the risk that potential rule violations by firm brokers, advisers and other personnel might avoid detection. FINRA found that the set of words and phrases that were “used to flag emails for review” was not adequate to detect certain types of potential rule violations that the firm “knew or should have anticipated” might take place. FINRA has stated that the firm additionally failed to “devote adequate personnel and resources” to the subset of its staff that reviewed flagged emails. According to FINRA, Raymond James Financial Services additionally failed to regularly test the email system’s “configuration and effectiveness,” instead focusing on cutting down the amount of “false positives” detected by the system, as opposed to devoting resources to make sure the system efficiently found all possible “problematic categories of emails.”

FINRA’s Executive Vice President, Department of Enforcement Susan Schroeder said in a statement: “Firms have a clear obligation to reasonably supervise electronic communications, which includes periodically re-evaluating the effectiveness of existing procedures. They should also assess whether their e-mail review and supervisory systems are reasonably designed in light of each firm’s business model.”

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