Davenport & Company, LLC, a broker-dealer headquartered in Richmond, Virginia, was censured and fined $115,000.00 by Financial Industry Regulatory Authority (FINRA) by consenting to findings that the firm, inter alia, failed to supervise consolidated reports distributed to customers regarding their investment accounts. Letter of Acceptance, Waiver and Consent, No. 2016051515201 (Dec. 27, 2017).
According to the AWC, between February of 2014 to December of 2015, the firm reportedly failed to create and administer supervision systems and written procedures designed to adequately supervise consolidated reports – documents that the firm provided to a customer in reference to the majority, if not the entirety, of assets held by the customer inside the firm and away from the firm.
The AWC stated that consolidated reports were actually disallowed by the firm before June 30, 2015. Yet, the firm’s controls and procedures were not enforced, enabling seven hundred consolidated reports to be disseminated by the firm’s stockbrokers to customers during the period that consolidated reports were prohibited.
The AWC stated that when consolidated reports were allowed in June 30, 2015, stockbrokers entering values of assets held outside the firm’s auspices on consolidated reports were required to produce supporting documentation such as an official report or statement referencing the asset value. Additionally, the consolidated reports subject of the new procedures were required to disclose that customers should review official documents about their assets held away from the firm. Further, the firm’s supervisors were required to take appropriate measures to ensure that the consolidated reports were accurate.
Evidently, the firm’s new procedures regarding consolidated reports were not enforced in any consistent manner. The AWC revealed that at least two hundred consolidated reports contained asset values held away from the firm even though there was no supporting documentation that the values were tied to. Apparently, supporting documentation was not referenced in consolidated reports and neither were the disclosures that the firm required.
Moreover, the firm reportedly failed to evidence that its supervisory personnel conducted a review to ensure that the reports were accurate. The AWC revealed that a substantial amount of reports contained assets values that were wrong. FINRA found that the firm’s failure to supervise in that regard was violative of FINRA Rules 2010 and 3110, as well as NASD Rule 3010.
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