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Brokers Go Rogue and Sell Unauthorized Private Placements for 14 Years

Tuesday, August 25, 2015

The Securities and Exchange Commission (“SEC”) has fined and censured a broker-dealer/registered investment adviser $450,000, fined and suspended a supervisor for twelve months for failing to stop two rogue brokers from selling an unauthorized private placement for which they received commissions and barred permanently and fined the two rogue brokers.

According to the SEC, the brokers sold the fund to over 125 clients in a 14-year period using the firm’s offices and sent the clients statements from the firm’s client reporting system. The SEC faults the firm for failing to adopt reasonable policies and procedures governing the use of its client reporting system and the supervisor for allowing the brokers to select which files to be reviewed every year rather than taking a random sample.

To read the complete Administrative Proceedings Document, please click here.

The regulators are looking at consolidated statements since they are so easy to fabricate. Firms should never allow manual changes to be made to client reporting documents. There should also be base reporting templates that are made available after they have been reviewed by compliance for representatives to use with clients. There are specific disclosures that need to be included on these statements.

Firms also must ensure that supervisors stay in line with the compliance program and follow the firm’s policies and procedures, including those involving selling away. If you have any questions about how your reporting system works or could be improved, please give us a call to discuss.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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