The Financial Industry Regulatory Authority (FINRA) fined SAL Financial Services, Inc. dba Sterne Agee Financial Services, Inc. (Sterne Agee) concerning allegations that Sterne Agee failed to implement reasonable supervisory procedures to detect and prevent excessive trading activity, otherwise known as churning, in client accounts.
Sterne Agee has been a FINRA member since 1986 and the firm’s main office is located in Birmingham, Alabama. Sterne Agee has 137 branch office locations and employs 304 registered representatives.
FINRA alleged that from August 2009, through November 2010, Sterne Agee failed to establish and maintain a supervisory system and enforce written supervisory procedures reasonably designed to identify and prevent unsuitable excessive trading and churning in customer accounts. Specifically, FINRA found that Sterne Agee relied solely on a single exception report with inadequate parameters to identify active accounts with patterns of unsuitable and excessive trading. FINRA alleged that Sterne Agee had access to its clearing firm’s additional exception reports but that Sterne Agee failed to use those reports. Consequently, FINRA concluded that Sterne Agee failed to identify at least thirty-nine accounts where thirty of the instances came from the Ft. Lauderdale, Florida office.
FINRA found that Sterne Agee’s inadequate supervision of active customer accounts stemmed from the firm’s reliance on designated principals and their processes to conduct supervisory review of active customer accounts without any independent verification from the firm’s home office. Further, FINRA found that Sterne Agee’s written supervisory procedures also required that a designated principal conduct active account reviews on a monthly basis and contact customers. However, FINRA found that Sterne Agee failed to document any active account reviews conducted during the period for its Ft. Lauderdale office.
Finally, FINRA found that Sterne Agee failed to document customer contact for twenty-nine out of thirty-nine active accounts. Specifically, the firm used a Client Contact Checklist to document the date of the call and specifics of the conversation. However, FINRA found that documentation of ten instances of customer contact was general and failed to address key items required by the firm’s Client Contact Checklist. Moreover, FINRA found Sterne Agee’s written supervisory procedures deficient in that they failed to establish specific guidance which would necessitate further review of active accounts or contact with customers. According to FINRA, specific guidance on thresholds regarding transaction or commission based restrictions that should be placed on accounts with significant turnover ratios did not exist.
The attorneys at Gana LLP are experienced in investigating claims of excessive trading and churning. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.