The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Blackbook Capital LLC (Blackbook) concerning allegations that: 1) between April 2010 and June 2011, Blackbook charged customers $60.50 on each purchase or sale transaction in addition to or in place of a designated commission; 2) between August 2010, and August 2011, Blackbook failed to search its records in response to requests by the Financial Crimes Enforcement Network of the Department of the U.S. Treasury (FinCEN) pursuant to the USA PATRIOT Act of 2001; 3) Blackbook failed to conduct an adequate independent Anti-Money Laundering (AML) test for calendar year 2010; and 4) between July 2009, and August 2011, Blackbook failed to preserve all of its business-related emails in a non-rewriteable, non-erasable format.
Blackbook has been a member of FINRA since March 2003. The firm has three offices with its main office located in New York City. Blackbook employs approximately 35 registered persons and engages in securities transactions for retail customers and investment banking transactions.
Under NASD Conduct Rule 2430 (Charges for Services Performed) charges for services performed, including miscellaneous services such as collection of moneys due for principal, dividends, or interest; exchange or transfer of securities; appraisals, safe-keeping or custody of securities, and other services, shall be reasonable and not unfairly discriminatory between customers. Under Exchange Act Rule 10b-10 (Confirmation of Transactions) broker-dealers are required to disclose specified information in writing to customers at or before the completion of a transaction. Finally, FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) requires a member in the conduct of its business to observe high standards of commercial honor and just and equitable principles of trade.
FINRA alleged that between April 8, 2010 and June 10, 2011, Blackbook charged its customers $60.50 on 4,515 purchase or sale transactions in addition to or in place of a designated commission charge. FINRA found that Blackbook characterized the charge on customer trade confirmations as “miscellaneous” or as an “additional fee.” FINRA found that the $60.50 charge was mostly not attributable to any specific cost or expense incurred by Blackbook or service performed by in executing each transaction nor was the charge determined by any formula applicable to all customers. FINRA concluded the charge mostly represented a source of additional transaction based remuneration or effectively a minimum commission charge. FINRA determined that by designating the charge on trade confirmations as “miscellaneous” or “additional fee” in addition to or in place of a designated commission charge, Blackbook mischaracterized and understated the amount of the total commissions charged by the firm to customers.
In addition, under Exchange Act Rule 17a-4(b)(4) each member must “preserve for a period of not less than three years, the first two years in an accessible place… [o]riginals of all communications received and copies of all communications sent…by the member, broker or dealer…relating to its business…” Firms are also required preserve the records of electronic records exclusively in a non-rewritable, non-erasable format. FINRA found that from July 2009, through August 25, 2011, Blackbook failed to preserve hundreds of business-related emails in a non-suspect rewritable, non-erasable format when personnel used personal email addresses of outside of the firm’s email domain to send business related emails.