Broker Dealer adviser failed to comply with Code of Ethics

FINRA has fined and suspended an adviser for providing a loan to a client and not disclosing it to his employer. The case is a clear reminder to firms to make sure policies and procedures are sufficiently embedded across the firm.

The adviser loaned $65,000 to one of his clients to cover personal expenses and, around the same time (February 2018), submitted a form to his employer – Merrill Lynch – falsely stating he has not loaned money to any of his clients.

According to FINRA Rule 3240, no person associated with a member in any registered capacity may borrow money from or lend money to any customer unless it follows specific conditions and is notified and approved by the member (usually their via their compliance department).

In 2021, the same adviser acquired a liquor store from one of his clients which he also failed to disclose to Merrill Lynch. According to the member’s Written Supervisory Procedures and/or Code of Ethics, any outside business activities must be disclosed to Compliance. Previously in 2015, the adviser has convinced that client, an 80-year-old man, to invest $4.6 million of his life savings in the same liquor store, which was sold for $585,000 a few years later. The investment recommendation is also under dispute.

Firms must provide the Code of Ethics, training and regular reminders about their own policies and procedures to employees. E-mail surveillance is also an important part of the assessment and continuing Compliance program to guarantee all the employees are performing their activities at the highest standards.

The adviser in this case had 27 years of experience and, according to BrokerCheck, had the following certifications: SIE, Series 7, Series 63 and Series 65. In this case, lack of knowledge of rules and internal procedures were certainly not an exemption of liabilities.

FINRA provides a platform where you can search for all Registered Representatives, including their licenses, disciplinary actions, outside business activities and disclosures.  As well as reviewing previous employment references, it is common practice to perform due diligence for every candidate, including using BrokerCheck before hiring someone to confirm that person is trustworthy.

How we can help

Bovill offers code of ethics training, reviews, code of ethics approvals (such as Outside Business Activities, Private Investments, Personal Account Dealing, Pay-to-Play, annual attestations, etc). Bovill also offers email surveillance services.

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