FINRA Fines Triad Advisors and Securities America for Failure to Supervise Issuance of Consolidated Reports

On March 12, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it sanctioned and fined Triad Advisors and Securities America, $650,000 and $625,000, respectively, for failing to supervise the use of consolidated reporting systems, after brokers from the firms inaccurately represented the value of some customer holdings, often inflating their overall worth.

Triad Advisors and Securities America, both registered broker dealers, had internal systems designed to generate consolidated reports—documents intended to combine most, if not all, of a customer’s financial holdings, regardless of where those assets or accounts are held. These reports do not replace account statements, but rather supplement the more traditional document. These two broker dealers, however, maintained consolidated report systems that allowed their respective brokers and representatives to manually create, rather than automatically generate, consolidated reports. In doing so, representatives from Triad and Securities America were able to customize the reports by manually inputting the data, entering asset values for accounts held away from the firm before providing the reports to customers.

According to FINRA, over the last few years, both firms regularly permitted their advisors to use these highly customizable reporting software systems, but in doing so, failed to maintain the proper supervisions. The lack of supervision, says FINRA, led to clients inadvertently, or in some cases intentionally, receiving inaccurate and misleading account information.

“Absent proper supervision, consolidated reports can be used by unscrupulous representatives to conceal fraud and theft,” said Brad Bennett, FINRA executive vice president and chief of enforcement, in a statement. He also noted that it was each individual firm’s responsibility to ensure that consolidated reports sent to customers are clear, accurate, and not misleading.

According to FINRA,  starting in 2007, Securities America granted access to the Albridge Wealth Reporting System to at least 1,150 of its advisors. The firm then relied upon the advisors themselves to self report and provide complete and accurate lists of those customers receiving the reports. FINRA found that many inaccurate reports had slipped through up to March 2013, including reports from hundreds of advisors that provided inaccurate values for investments such as Medical Capital notes and Provident Shale Royalties.

As was the case in Securities America, Triad also provided its advisors with access to systems that allowed them to create and customize consolidated reports. Triad used a platform called Investigo. Due to Triad’s lack of supervision, FINRA alleges that at least two former Triad advisors issued inaccurate reports containing falsified assets. FINRA further claims that one former advisor sold fraudulent promissory notes, while another stole $100,000 from a client, which went undetected due to the fraudulently produced consolidated reports.

Finra said the firms neither admitted nor denied charges, but consented to the findings of its investigation.

The attorneys at Gana LLP are experienced in representing investors concerning claims involving the fraudulent and misrepresentative activity of brokers and advisors. Our consultations are free of charge and the firm is only compensated if you recover.