First Southwest Company, a FINRA registered broker-dealer since 1946 headquartered in Dallas, TX, offers a variety of investment services along with providing clearing services to 78 correspondent firms. The Firm was just recently censured and fined $450,000 after it accepted and consented to FINRA’s findings that the Firm had failed to deliver Exchange Traded Fund (“ETF”) prospectuses to its own customers at the time of delivery of the security, failed to establish and maintain a supervisory system reasonably designed to monitor and ensure the delivery of prospectuses to customers, and failed to observe high standards of commercial honor and just and equitable principles of trade when it delayed notification of its prospectus delivery failures to the 36 correspondent firms affected by the failures. FINRA Letter of Acceptance, Waiver and Consent No. 2013038322901 (July 16, 2015).
First Southwest Company’s Failures According to the AWC
According to the Acceptance, Waiver and Consent (“AWC”), over the course of approximately seven months beginning in August, 2012, the Firm’s clearing operations ran a faulty operation when effecting securities transactions throughout the process of upgrading their electronic systems. The AWC indicates that this resulted in the Firm’s failure to deliver a prospectus for at least 506 securities transactions valued at approximately $40M. The AWC further states that the Firm failed to abide by their obligation of delivering a prospectus to its customers at the time the security was delivered or beforehand.
Also according to the AWC, First Southwest failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures to ensure that customers who purchased certain investment products were receiving a required prospectus. The AWC indicated that First Southwest’s supervisory systems and written supervisory procedures did not identify transactions where a prospectus was required to be delivered but was not, nor did the Firm had adequate written supervisory procedures to ensure that prospectuses were being delivered on a timely basis.
The AWC further stated that First Southwest failed to deliver a prospectus for thousands of ETF, Closed-End Fund (“CEF”) and Unit Investment Trust (“UIT”) purchase transactions for 26 correspondent firms that cleared through First Southwest (the “Correspondents”).
According to the AWC, First Southwest’s prospectus delivery failures were identified in April 2013 when the Firm responded to a FINRA request seeking documentation that the Firm was delivering prospectuses to ETF, UIT, and CEF customers. Despite the Firm’s awareness of the failure of their prospectus delivery system in April 2013, it was not until August 2014 that the Firm made such failures known to Correspondents.
Firms are Required to Deliver Prospectuses to Customers
Firms selling securities such as First Southwest are required to deliver prospectuses to its customers at the time the securities are delivered are beforehand. FINRA member firms are also required to establish, maintain, and enforce systems and procedures to supervise each type of business they engage in, and their systems and procedures must be reasonably designed to achieve compliance with securities laws, rules, and regulations. Such procedures include written supervisory procedures to ensure prospectuses are being delivered on a timely basis. First Southwest’s conduct, as described in the AWC, triggered violations of Section 5 of the Securities Act, FINRA Rule 2010, and NASD Rule 3010, ultimately resulting in their censure and fine of $450,000.
Public Disclosure Records
Public disclosure records reveal that First Southwest has been subject to a total of 5 investment related arbitration events resulting in damages awards, with allegations including misrepresentation, account related errors-charges, breach of fiduciary duty, unauthorized trading, account related failure to supervise, and omission of facts. Records also reveal that the Firm was subject to a total of 15 regulatory events resulting in censure and fines.
Investors suffering losses caused by First Southwest’s aforementioned misconduct in connection with their securities business may be able to recover their investment losses.
Guiliano Law Group
Our Practice is limited to the representation of investors in claims against stockbrokers and investment professionals for fraud, the sale of unsuitable investments, breach of fiduciary duty, failure to supervise. National Practice. Contingent Fee. Free Consultation. If you have suffered losses a the result of the recommendation of inverse and leveraged ETFs by your stockbroker or investment professional and were unaware of the risk associated with these securities, contact us for a free confidential evaluation at (877) SEC-ATTY.