The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm Gilford Securities, Inc. (Gilford Securities) concerning allegations that from April 2010 through March 2012, Gilford Securities failed to: (i) make certain disclosures in research reports; (ii) have approval of certain research reports; (iii) implement written supervision policies reasonably designed to comply with NASD Rule 2711; (iv) establish and enforce written supervisory control policies concerning the supervision of producing managers; and (v) implement a reasonably designed Anti-Money Laundering Compliance Program (AMLCP).
Gilford Securities has been a FINRA member since January 1980, has eight branch offices, and 78 registered representatives. Gilford Securities’ principal place of business is New York, New York.
FINRA rules require disclosure of any material conflict of interests of the research analyst of which the research analyst knows or has a reason to know in the publication of the research report. FINRA found that from April 2010, through March 2012, Gilford Securities published 503 research reports. FINRA found that each of those reports failed to disclose that the research analyst received compensation of commissions on transactions the analyst’s customers made in the securities covered in violation of the FINRA Rules.
The FINRA rules also require members to establish, maintain, and enforce a supervisory system and control policies that test and verify that the firm’s supervisory procedures are reasonably designed to achieve compliance with the securities laws and regulations. In addition, the firm must submit no less than annually a report detailing the members system of supervisory controls. FINRA rules also require a member to ensure that its procedures are reasonably designed to review and supervise customer account activity conducted by producing branch managers. Firms must also ensure that its procedures are reasonably designed to provide heightened supervision over the activities of producing managers who are responsible for generating 20% or more of the revenue of the business units. Finally, FINRA rules also require that members enforce procedures that are reasonably designed to review and monitor all transmittal of funds or securities from customers to third party accounts, outside entities, locations other than a customer’s primary residence, and brokers.
FINRA found that from April 2010, through March 2012, Gilford Securities failed to establish, maintain, and enforce supervisory procedures that were reasonably designed to provide heightened supervision over the activities of five producing managers that were generating 20% or more of the revenue of the business units supervised by that producing manager. In addition, FINRA also alleged that Gilford failed to notify FINRA of its reliance upon the “Limited Size and Resources” exception and failed to enforce policies reasonably designed to ensure compliance with that exception.
The attorneys at Gana LLP are experienced in representing investors to recover their investment losses due to the failure of brokerage firms to supervise their employees. Our consultations are free of charge and the firm is only compensated if you recover.