SagePoint Financial Inc., a securities broker dealer headquartered in Phoenix, Arizona, has been censured and fined $700,000.00 by Financial Industry Regulatory Authority (FINRA), supported by findings that SagePoint failed to supervise stockbrokers who were the subject of misconduct, and it failed to supervise its reporting of wrongdoing by those who associated with the securities broker dealer. Letter of Acceptance, Waiver, and Consent No. 2019062873301 (December 17, 2021).
According to the AWC, SagePoint did not create or implement a supervision system or written supervisory procedures relating to those stockbrokers who had misconduct records, including records of regulatory actions. The AWC states that there was no system adequately designed by SagePoint for putting stockbrokers on heightened supervision and disciplining stockbrokers that committed regulatory violations or other wrongdoing. Among the problems included SagePoint’s faulty delegation of authority between compliance personnel and supervisory personnel and problems relating to recordkeeping.
FINRA states that SagePoint also failed to have written supervisory procedures on evaluating stockbrokers with multiple violations. The securities broker dealer’s record-keeping problem prevented it from assessing when stockbrokers had multiple instances of wrongdoing.
The AWC states that since 2013, 1,500 disciplinary letters have been issued by SagePoint to 700 representatives. One hundred thirty two SagePoint representatives received three or more letters. Eleven stockbrokers were disciplined a collective 110 times, but no discipline had been imposed. The AWC states that SagePoint failed to place them on heightened supervision even though they had disciplinary histories. Fines did not align to the type of harmful activities committed, and the securities broker dealer did not report those stockbrokers’ activities.
FINRA notes that one stockbroker was repeatedly disciplined by SagePoint for not submitting applications to supervisors for preapproval. SagePoint learned that false information was placed on applications by this stockbroker to get around the company’s standards. FINRA states that a compliance officer learned about the stockbroker possibly forging customers’ signatures on applications. The stockbroker was not placed on heightened supervision. SagePoint did not consider reporting this. FINRA states that $400,000.00 in customer funds were converted by that stockbroker through his forgery of annuity withdrawal forms.
In a second instance, a stockbroker was disciplined by SagePoint on 12 occasions between August of 2014 and May of 2021. One of the letters that the securities broker dealer sent to the stockbroker concerned the stockbroker’s violation of policy on breakpoints and rollovers relating to unit investment trusts. The same policies were violated by that stockbroker on 70 more occasions, resulting in two more disciplinary letters.
FINRA states that SagePoint only recorded one of those letters in the compliance personnel’s database and only three in the supervisors’ database. The stockbroker raised red flags about selling away and was referred by compliance personnel for discipline without personnel knowing that there were seven other disciplinary events on the stockbroker’s record. The stockbroker was not placed on heightened supervision, and SagePoint did not consider reporting this under FINRA Rule 4530.
In a third instance, a state regulator probed SagePoint on a stockbroker’s potential private securities transactions. SagePoint’s compliance personnel learned about the stockbroker selling away. They noted that the stockbroker failed to inform SagePoint about the private transactions. There was no action or referral by the compliance personnel. Compliance personnel learned in a 2017 investigation that the stockbroker provided false information to the firm in response to inquiries. SagePoint only permitted the stockbroker to resign after FINRA contacted it about that stockbroker. Like the other stockbrokers, this one was not placed under heightened supervision during their employment with the company.
FINRA found that SagePoint Financial violated FINRA Rules 2010 and 3110 as well as National Association of Securities Dealers (NASD) Rule 3010.
