Arive Capital Markets, based in Staten Island, New York, has been censured and fined $300,000.00 by Financial Industry Regulatory Authority (FINRA) for failure to supervise suitability and telemarketing. Letter of Acceptance, Waiver, and Consent No. 2018056483905 (May 14, 2024).
According to the AWC, from August 2016 to June 2020, Arive Capital Markets did not maintain a supervisory system, including written supervisory procedures, to ensure compliance with FINRA’s rules on excessive trading. The securities broker dealer failed to identify or address red flags in 12 customer accounts, resulting in approximately $640,000.00 in commissions, margin interest, and costs paid by these customers.
The firm’s written procedures lacked necessary guidance for principals to identify or investigate excessive trading and did not explain what constituted a concerning activity or an active account. Until 2018, the procedures did not cover excessive trading, and when they were updated, they still failed to provide adequate benchmarks for cost-to-equity ratios and turnover rates. The regulator indicated that daily reviews of customer account activity did not cover longer periods necessary to uncover patterns of unsuitable trading.
The securities broker dealer’s reliance on exception reports provided by its clearing firm was not reasonable. These reports flagged in-and-out trading, cost-to-equity, and turnover, but were not reasonably put to use by Arive’s supervisors. The procedures did not confirm which reports should be reviewed, access methods, or main indicators of excessive trading. There was also no training for supervisors on excessive trading concepts.
Between 2018 and 2019, several exception reports were unavailable, and no other system was put in place to supervise excessive trading. FINRA also stated that from April to August of 2019, the turnover exception report reviewed only a month of activity instead of the available one year of historical data.
According to the AWC, Arive’s supervisory system failed to identify or address red flags of excessive trading by six stockbrokers in 12 customer accounts, causing substantial financial harm to these customers. For instance, a 67-year-old customer from Georgia with limited knowledge of investing paid more than $88,000.00 in fees and commissions and nearly $8,000.00 in margin interest because of excessive trading recommendations from one stockbroker. Another example involved a 64-year-old customer from Colorado who paid over $137,000.00 in fees, margin interest, and commissions because of excessive trading in his account.
FINRA stated that Arive’s supervisory system was also not designed to identify and respond to excessive trading, leading to violations of FINRA Rules 2010 and 3110.
Arive also did not comply with the requirements of FINRA Rule 3230 regarding telemarketing from June 2018 through February 2019. Specifically, the written supervisory procedures did not guide representatives on the do-not-call list or address time-of-day restrictions for telemarketing calls. There were no trainings given to those who were involved in telemarketing activities, and the reviews of the do-not-call list were not adequate, according to the regulator.
During this period, Arive representatives made over 60,000 outbound calls to more than 20,000 telephone numbers listed on the national do-not-call registry. Additionally, there were 27 or more instances of calls made to numbers on the securities broker dealer’s internal do-not-call list and at least 32 instances where calls were made outside the permitted hours. Therefore, Arive violated FINRA Rules 2010, 3110, and 3230.
