Feltl & Company, a broker-dealer headquartered in Minneapolis, Minnesota, has been censured and fined $150,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm, inter alia, failed to supervise a registered representative’s trading activities. Letter of Acceptance, Waiver and Consent, No. 2010024882202 (Feb. 28, 2017).
According to the AWC, between October 1, 2008, and October 26, 2010, Feltl & Company did not create and sustain adequate supervisory protocols and systems for purposes of reviewing and monitoring transactions effected by registered representatives in Feltl & Company’s accounts to determine if conflicts of interest existed. The AWC stated that exception reports were generated by the firm which detected occasions when firm customers and registered representatives effected transactions on the exact same day. The firm reportedly lacked adequate means to detect conflicts of interest when securities owned by registered representatives were sold by the registered representatives contemporaneously with making recommendations for the firm’s customers to purchase the same securities.
The AWC additionally stated that no supervision systems and protocols were implemented by the firm to ensure that registered representatives made disclosures to customers regarding conflicts of interest. Further, written supervisory procedures utilized by the firm failed to address the nature and scope of supervisory review of the firm’s exception reports.
Consequently, the AWC revealed that a registered representative, TC, effected the sale of at least $900,000 in X Corp shares, which were penny stocks owned by TC during the time he recommended Feltl & Company’s customers purchase X Corp shares. Apparently, the shares of X Corp were sold by TC in his account, while 1,270,000 X Corp shares were bought by fifty-nine customers pursuant to recommendations made by TC. The AWC further referenced that shares of X Corp were sold by TC on days in which the customers’ purchases were made based upon his recommendation. Evidently, customers were not apprised by TC that he sold X Corp shares.
The AWC detailed that Feltl & Company failed to take action regarding the red flags pertaining to TC’s activities, which were discoverable based on exception reports used by the firm. TC’s activities were found by FINRA to be inadequately monitored by the firm. The firm’s aggregate supervisory failures prompted FINRA to find the firm’s conduct to be violative of FINRA Rule 2010, NASD Rule 2110 and NASD Rule 3010(a).
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