Faulty consolidated reporting systems have resulted in heavy FINRA fines for two big independent broker-dealers.
Triad Advisors, based in Atlanta, and La Vista, Neb.-based Securities America received fines of $650,000 and $625,000, respectively, for "failing to supervise the use of consolidated reporting systems resulting in statements with inaccurate valuations being sent to customers," according to a FINRA statement. The firms were also cited by FINRA for "failing to retain the consolidated reports in accordance with securities laws."
Triad was also ordered to pay $375,000 in restitution.
Securities America ranked 10th on last year's FP50 ranking of top independent B-Ds, while Triad ranked No. 36; both firms are divisions of Ladenburg Thalmann Financial Services. (A third Ladenburg IBD, Investacorp, was not cited in the FINRA settlement.)
Both fines stem from the B-Ds' practices related to consolidated reports -- single documents that combine information regarding most or all of a customer's financial holdings, regardless of where those assets are held. Consolidated reports supplement, but do not replace official customer account statements.
SUPERVISORY SHORTCOMINGS
Both Triad and Securities America had systems that permitted representatives to create consolidated reports, entering customized asset values for accounts held away from the firm and to provide the reports to customers, FINRA said.
For more than two years, according to FINRA, Triad and Securities America "failed to supervise hundreds of brokers, some of whom were creating and sending false and inaccurate consolidated reports to customers. Many of these consolidated reports contained inflated values for investments, some of which were in default or receivership."
"Firms must ensure that consolidated reports sent to customers are clear, accurate and not misleading," Brad Bennett, executive vice president and chief of enforcement for FINRA, said in a statement. "Absent proper supervision, consolidated reports can be used by unscrupulous representatives to conceal fraud and theft."
CASES SETTLED
In concluding the settlements with FINRA, Triad Advisors and Securities America neither admitted nor denied the charges, but consented to the entry of the self-regulatory organizations' findings.
At Triad, FINRA said, "a number of consolidated reports sent to customers reflected fictitious promissory notes or other fictitious assets, which enabled two representatives to conceal their misconduct." Triad has paid restitution to some of the affected customers and FINRA has ordered Triad to pay restitution to the remaining affected customers.
Triad Advisors has worked diligently to enhance supervision and books and records requirements for performance reports and will continue to do so," said a spokesperson for the firm in a statement. "This is an industry-wide issue that requires a significant investment, and we have worked with the most widely used performance report vendors to enhance their systems to help broker-dealers and advisors meet these requirements.
"Securities America has worked diligently to enhance supervision and books and records requirements for performance reports and will continue to do so," Janine Wertheim, Securities America's senior vice president and president of Securities America Advisors, said in a statement. "This is an industry-wide issue that requires a significant investment, and we have worked with the most widely used performance report vendors to enhance their systems to help broker-dealers and advisors meet these requirements."
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