Park Avenue Securities, a securities broker dealer headquartered in New York, New York, has been censured and fined $30,000.00 because it failed to supervise a representative who engaged in outside business activities and private securities transactions. Letter of Acceptance, Waiver, and Consent No. 2020066651002 (May 31, 2023).
According to the AWC, between December of 2014 and April of 2018, Park Avenue Securities did not investigate warning signs that a stockbroker was involved in an outside business activity related to Company A. They also failed to look into undisclosed private transactions involving a customer making investments in Company A.
FINRA indicated that the securities broker dealer had a system in place to review stockbrokers’ emails. This consisted of random sampling and filtering using specific search terms to uncover red flags. If an email had any of these terms, it was flagged for further review. Park Avenue Securities’ procedures required flagged emails to be escalated to a supervisor if there were signs of policy breaches or violations of regulations and laws.
FINRA stated that Park Avenue Securities flagged 26 emails sent or received by the stockbroker regarding Company A, showing possible involvement in an outside business activity or private securities transaction. But in 25 instances, the supervisory review was closed out without additional inquiry.
These flagged emails included inquiries from investors of Company A, solicitations to potential investors (including customers of Park Avenue Securities), instructions to reach out to the stockbroker for investment-related payments or questions, and communications regarding Company A’s operation, acquisition, or management. Some emails had attachments, such as subscription agreements, applications for business licenses, and acquisition documents. FINRA found that this showed the stockbroker’s involvement in private securities transactions or outside business activities concerning Company A.
The securities broker dealer only escalated one email concerning the stockbroker’s connection with Company A. In February of 2016, a supervisor asked the stockbroker about the flagged email, but the stockbroker denied knowing about Company A. The securities broker dealer ended the inquiry further investigation, despite subsequently flagging eight more communications showing the stockbroker’s activities with Company A.
The AWC stated that in 2019, through an internal investigation, Park Avenue Securities discovered information about undisclosed private securities transactions. The securities broker dealer terminated the stockbroker’s registration at that time. In a May 2020 Form U5, the firm stated that the stockbroker was permitted to resign during a time that he was internally investigated for potentially failing to disclose selling away activities and soliciting customers to invest.
FINRA found that the securities broker dealer violated FINRA Rules 3110 and 2010.
