First Financial Equity Corporation, headquartered in Scottsdale, Arizona, as well as the firm’s Chief Compliance Officer, Melissa Strouse, was named in a Financial Industry Regulatory Authority (FINRA) Department of Enforcement Complaint alleging failure to supervise various aspects of the firm’s operations, including commissions charged by the firm’s staff. Department of Enforcement v. First Financial Equity Corporation, et al., No. 2013034966701 (July 12, 2016).
According to the Complaint, Strouse’s responsibilities as Chief Compliance Officer included confirming that the firm’s supervisory procedures and protocols were effective. Strouse was additionally the primary supervisor at the First Financial Equity Corporation’s main office in Scottsdale, Arizona, which is where FINRA alleged that supervisory deficiencies took place.
Of critical mention among the supervisory failures at FFEC was the oversight concerning fees that customers would bear pursuant to investing through the firm. Supervisory procedures, according to the Complaint, were not put in place to ensure that fees charged to clients were appropriate. FINRA alleged that the firm had no way of detecting circumstances where fees were excessively applied to customers’ accounts.
FINRA further alleged in the Complaint that at least in Scottsdale, Arizona, the firm had not properly supervised the firm customers’ account based activity. Apparently, FFEC did not adopt supervisory measures and protocols pertaining to the options part of the firm’s business. In one case, an individual who reviewed options transactions was not even registered. FINRA alleged that the firm’s supervisory failures were violative of FINRA Rules 2360, 2010, and NASD Rules 3010(a) and (b).
The Complaint additionally stated that the firm failed to adequately confirm that products sold to investors were actually suitable for them. Specifically, the firm reportedly did not utilize any written procedures regarding the approval and supervision of exchange traded funds sales, which FINRA alleged was violative of FINRA Rule 2111. FINRA found that the firm’s supervisory failures in this regard was violative of FINRA Rule 3010. Since Strouse was responsible for the firm’s compliance in this respect, her failure to create and implement supervisory procedures concerning FFEC’s exchange traded fund business was violative of FINRA Rule 2010 and NASD Rule 3010(b).
Further, FINRA alleged that the firm did not adequately enforce written supervisory procedures regarding the review of excessive trading and churning, and accounts that were deemed discretionary. The Complaint alleged the firm’s failure to specify proper supervisory procedures was violative of FINRA Rule 2010 and NASD Rule 3010(b) in this regard.
In one case, occurring from July 2012 through April 2013, the firm’s supervisory failures caused a firm representative, JW, to charge excessive commissions. Even after the firm’s risk manager reportedly discovered the red flags pertaining to JW’s excessive commissions, FFEC did not respond by adequately supervising the representative or otherwise remedying the situation.
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