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FINRA reports disciplinary actions taken against brokers/dealers

The Financial Industry Regulatory Authority took disciplinary actions in December 2017 against certain companies for various violations.

FINRA censured and hit Goldman Sachs & Co. LLC with a $700,000 penalty over the company's alleged failure to deliver various exchange-traded funds' prospectuses due to design flaws in its prospectus delivery system that were undetected for more than five years.

Legend Securities Inc. was censured and fined $200,000 after an Office of Hearing Officers decision became final. The sanctions were based on findings that the company failed to supervise a registered representative who fraudulently churned the accounts of an elderly and blind customer, resulting in net losses exceeding $170,000. The company allegedly failed to adequately investigate red flags demonstrating that the representative was churning the customer's accounts.

FINRA censured NEXT Financial Group Inc. and fined the company $750,000. The regulator found that the company allegedly failed to establish, maintain and implement a supervisory system reasonably designed to detect and address excessively traded accounts. The alleged supervisory failings resulted from an inadequate corrective action taken by the company in response to prior FINRA disciplinary actions that included a failure to use exception reports or any other reasonably designed system to detect excessive trading, according to the findings. The regulator also claims that the company failed to implement a supervisory system and procedures reasonably designed to ensure appropriate suitability determinations in its variable annuity sales.

The regulator censured and fined Liberty Partners Financial Services LLC $100,000 over the company's alleged failure to ensure that its written supervisory procedures described how it would identify or address potentially excessive trading and accurately reflected the methods it employed to supervise for potentially excessive trading. The company also allegedly failed to ensure that its written supervisory procedures accurately reflected the methods it employed to supervise potentially excessive options costs.

Deutsche Bank Securities Inc. was censured and fined about $1.1 million over findings that its supervisory system related to the Trade Reporting and Compliance Engine, or TRACE, was inadequate. FINRA found that the company failed to enforce some of its written supervisory procedures because it failed to adequately escalate TRACE reporting deficiencies and take steps to implement corrective action to remediate TRACE reporting deficiencies.

Merrill Lynch Pierce Fenner & Smith Inc. was censured and fined $13 million over findings that its implementation of certain systems and procedures that comprise its antimoney laundering compliance program related to retail brokerage accounts suffered from numerous deficiencies. As a result, the company allegedly failed to detect and investigate potentially suspicious activity.

FINRA also censured and fined Davenport & Co. LLC $115,000 over the company's failure to establish, maintain and enforce a supervisory system, including written supervisory procedures, reasonably designed to supervise registered representatives' use of consolidated reports. The findings also stated that the company failed to establish a system of risk management controls and supervisory procedures for two alternative trading systems for municipal securities transactions.

The regulator sanctioned FSC Securities Corp., Royal Alliance Associates Inc., BB&T Investment Services Inc., Investacorp Inc., Investors Capital Corp. and J.P. Turner & Co. LLC over violations related to mutual fund sales-charge waivers. The regulator ordered the companies to separately provide plans to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver. The companies allegedly disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase class A shares in certain mutual funds without a front-end sales charge but were instead sold class A shares with a front-end sales charge, or class B or C shares with back-end sales charges and higher ongoing fees and expenses.

To settle the charges, FINRA fined FSC Securities $100,000 and Royal Alliance Associates $150,000. FSC Securities and Royal Alliance also agreed to pay restitution to eligible customers in the amount of $414,261 and $519,699, respectively.

BB&T Investment Services, Investacorp, Investors Capital and J.P. Turner agreed to pay restitution to eligible customers in the amount of $373,134, $247,886, $437,674 and $213,137, respectively.

Goldman Sachs & Co., NEXT Financial, Liberty Partners, Deutsche Bank Securities, FSC Securities, Royal Alliance Associates, Merrill Lynch, Davenport & Co., BB&T Investment Services, Investacorp, Investors Capital and J.P. Turner & Co. did not admit nor deny the findings but consented to the sanctions and to the entry of the findings.