by Howard Haykin

A Broker who had 29 years’ experience with 2 firms agreed to pay a $5K fine and serve a 2-month suspension to settle FINRA charges that he allowed a former registered rep (“Former RR”) to act in a capacity that required registration.

FINRA FINDINGS.    From January of 2013 to April of 2014, while working for Cetera Advisors Network, the Broker allowed a Former RR to perform services for which she should have been registered.

• Former RR played a role in the sale of approximately 32 alternative investments to 26 customers;
• Former RR’s level of involvement varied from customer to customer, but in some instances …

►   Former RR and Broker would sometimes meet with a customer and assess the customer's suitability for an investment and make a recommendation.

►   Former RR would sometimes meet with a customer on her own and assess suitability, make a recommendation, and then fill out the required paperwork. Former RR would then drop off the paperwork at Broker's office to be executed under the Broker's name at Cetera.

• Former RR activated her registration with Cetera Advisors in April 2014.
• While unregistered, Former RR was paid $102,000 by Broker for her work; after she became registered, Former RR received additional payments totaling $23,000.

The Broker was discharged by Cetera Advisor Networks in January 2016 for having “employed a non-registered person without properly associating them with the firm and obtaining fingerprints as is required by firm policy and industry regulations.”

FINANCIALISH TAKE AWAYS.    While the Broker was wrong to use the Former RR in a registered capacity, a couple of thoughts crossed my mind.

First, ... Do you think, as I do, that supervisory principals at Cetera's branch office knew about the Broker's working relationship with the Former RR? And, if so, it's quite possible that these same Cetera principals knew about the payment arrangements. That said, it's unlikely that FINRA has any evidence to tie "failure to supervise" charges on Cetera and its supervisory principals.

Second ... I wonder whether FINRA examiners even thought to investigate such a possibility. Probably not, because one would have to understand the culture of a branch office to sense such matters – and it's likely that FINRA field personnel have never have worked in a branch office of a broker-dealer.

That's unfortunate, because I believe that FINRA could deter such violative working relationships if its personnel learned to drill down deeper into its casework. Just a thought!

This case was reported in FINRA Disciplinary Actions for March 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015048340301.