The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Safeguard Securities, Inc. (Safeguard Securities) and broker Peter Mooney (Mooney) concerning allegations that during a FINRA examination of the firm Safeguard Securities provided certain outside business activity (OBA) forms to FINRA that had been backdated. FINRA found that Mooney, who signed the backdated forms, knew or should have known that the forms had been backdated. In addition, FINRA identified many supervisory and recordkeeping failures relating to: the review and retention of electronic communications; outside business activities; private securities transactions; the supervision of producing managers; and branch registration and fingerprinting of personnel.
FINRA found that Mooney was the firm’s principal and supervisor responsible for establishing and implementing supervisory procedures. FINRA alleged that Safeguard Securities, through Mooney, failed to establish and/or implement adequate supervisory procedures in numerous respects. First, it was alleged that the firm failed to establish and implement an adequate supervisory system for the review and retention of electronic communications relating to the business of the firm. For example, between July 14, 2008, and November 4, 2012, it was alleged that Safeguard Securities failed to maintain any record to evidence its review of electronic communications. Further, FINRA alleged that the firm failed to take any steps to monitor registered representatives who used e-mail addresses at domains other than the firm’s e-mail system.
In another instance of supervisory failure, FINRA alleged that during 2012, Mooney knew that a broker by the initials “WM” was engaging in private securities transactions for compensation. Notwithstanding the fact that the firm prohibited such activity, FINRA found that Mooney failed to take any steps to stop the broker’s participation in those transactions. Under NASD Rule 3040, a duty is imposed on member firms to supervise the transaction as if the transaction were executed on behalf of the member.
FINRA also alleged that the firm failed to review disclosed OBA’s under FINRA Rule 3270. Under that rule firms must undertake a review of the outside business activity to determine: (1) whether the OBA would interfere with or the registered person’s responsibilities to the firm; (2) whether the OBA could be viewed by customers or members of the public as part of the firm’s business; (3) the advisability of imposing conditions or limitations on the participation in a proposed OBA; and (4) whether the OBA should be viewed as an outside securities activity subject to the requirements of Rule 3040. FINRA found that the Firm failed to undertake this required review with respect to 20 disclosed outside business activities.
FINRA also alleged a violation under NASD Rule 3010(a)(6) which requires member firms to take reasonable efforts to ensure that all supervisory personnel are qualified by virtue of experience or training. FINRA alleged that in February 2012, Mooney assumed the chief compliance officer (CCO) position at the firm but that he admittedly was not qualified to fulfill the duties and responsibilities attendant to the position. Accordingly, FINRA found that during the period from February 2012, through March 2013, the firm failed to employ a qualified CCO.
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