Barclays Capital

FINRA Fines 10 Brokerage Firms $43.5 Million For Conflicts of Interests in Toys “R” Us IPO

January 16, 2015 | by Staff Attorney

The merry go-round of Wall Street fraud continues. After the housing crisis where Wall Street sold terrible home loans to investors we’ve arrived back to dot.com era frauds of selling favorable research. Enter the recent fine imposed by The Financial Industry Regulatory Authority (FINRA) that 10 of the largest brokerage firms were fined a total of $43.5 million for allowing their equity research analysts to solicit investment banking business by offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us.

FINRA fines are as follows:

Barclays Capital Inc. – $5 million

Former Merrill Lynch Broker George Zaki Sanctioned Over Unauthorized Trading Allegations

September 9, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker George Zaki (Zaki) concerning allegations that between June 2010, and August 2012, Zaki implemented and/or executed approximately 3,600 discretionary trades in the accounts of approximately 80 Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) customers without the customers’ prior written authorization.

Zaki entered the securities industry in October 2007 joining Neuberger Berman LLC. In June 2010, Zaki became registered with Merrill Lynch. Zaki remained registered with Merrill Lynch until he was terminated on October 8, 2012 when Merrill Lynch filed a Form U-5 stating that Zaki was terminated for “conduct involving exercising discretion in non-discretionary client accounts.” In November 2012, Zaki became registered with Barclays Capital Inc. until March 2014. Thereafter, Zaki became registered with Janney Montgomery Scott LLC where he is presently employed.

Under the FINRA rules, unauthorized discretionary trading is not allowed. NASD Rule 2510(b) provides that registered representative may exercise discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm. FINRA has stated that subsequent ratification of the transaction by the customer does not excuse this violation. In addition, FINRA Rule 2010 requires members and associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.

Barclays Capital Fined $3.75 Million Regarding Record Retention Failures

April 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined Barclays Capital Inc. (Barclays) $3.75 million for systemic failures relating to the failure to preserve electronic records, emails, and instant messages in the manner required for a period of at least 10 years. The retention of electronic correspondence and records is critical for the proper supervision of brokerage activities. Without a proper record retention system, brokerage firms are essentially blind to certain types of securities misconduct.

Federal securities laws and FINRA rules require that business electronic records must be kept in non-rewritable, non-erasable format — also referred to as “Write-Once, Read-Many” or “WORM” format — to prevent alteration. The Securities and Exchange Commission (SEC) has stated that a firm’s books and records are the primary means of monitoring compliance with the securities laws.

FINRA found that from at least 2002 to 2012, Barclays failed to preserve many of its required electronic books and records—including order and trade ticket data, trade confirmations, blotters, and account records in WORM format. FINRA found that Barclays retention failures were widespread and included all of the firm’s business areas. Thus, FINRA alleged that Barclays was unable to determine whether all of its electronic books and records were maintained in an unaltered condition.