FINRA Lawyer Blog
FINRA recently announced monetary sanctions against Wedbush Securities in the amount of. $1.5 million for SEC rule violations and associated compliance failures.
According to FINRA, Wedbush violated the SEC Customer Protection Rule, which requires broker-dealers to maintain a certain degree of physical possession and control over customer securities.
The object of the rule is to facilitate recovery of customer assets if the broker-dealer becomes insolvent. Firms are also required to keep these securities in what is called a control location, free of any liens.
Broker-dealers are also required to maintain in a bank account cash or qualified securities matching in net value what they owe to their customers.
As per the SEC Net Capital Rule broker-dealers are obligated to maintain a “minimum amount of net capital” which is calculated using specific formulas.
FINRA’s investigation revealed that Wedbush failed to comply with the net capital rule over a period of five months between 2015-2016. The capital deficiency, which amounted to nearly $60 million at its highest point, was caused by the firm’s faulty and negligent computing of its net capital.
As for the customer reserve requirements, Wedbush allegedly incurred violations on over 80 occasions between 2011 and 2016.
Again, the problems arose from miscalculations as to what the customer reserve should be as well as to the inclusion of ineligible assets. The resulting underfunding often amounted to hundreds of millions of dollars.
In addition to these violations, between 2009 and 2016, the broker-dealer failed to keep the required customer assets under its control and free of liens.
As a result of its many violations and numerous inconsistencies, FINRA stated that Wedbush kept inaccurate books for nearly seven years and submitted dozens of inaccurate FOCUS reports.
Wedbush securities is no stranger to enforcement actions by various regulatory entities. Last year, it was its founder and owner, Edward W. Wedbush, who had to respond to NYSE Regulation over the firm’s “systemic failure” to “oversee and supervise” his personal trading activities.
The NYSE complaint referred to the firm’s “long history of disciplinary actions related to supervisory deficiencies” and alleged that Mr. Wedbush “spent several hours each trading day actively managing and trading in more than 70 accounts.”
According to the NYSE Regulation. the firm failed to oversee those trades ignoring their potential for “conflicts of interest and… manipulative activity,” in other words, Wedbush was likely saving the most convenient trades for himself, his family, and his friends.
Upon the announcement of the most recent monetary sanctions against Wedbush, FINRA’s Enforcement VP Susan Schroeder emphasized firms` ”responsibility to safeguard the securities of their customers,” and the necessity of maintaining the appropriate supervision systems to ensure detection of compliance failures.
Broker-dealer facing FINRA scrutiny for SEC violations? Herskovits PLLC securities lawyers defend broker-dealers and financial industry professionals facing regulatory enforcement actions. Call us to learn your rights and options. Decades’ experience and successful outcomes. 212.897.5410