IBankInvestmentConsultant) FINRA fined Raymond James $17 million for “widespread failures” in the firm’s anti-money laundering compliance program, making it the largest penalty that the regulator has dished out for that type of infraction, a spokeswoman says.
The failures occurred in Raymond James’ employee and independent channels, which were fined $8 million and $9 million respectively. FINRA also fined former Raymond James & Associates compliance officer Linda Busby $25,000 and suspended her for three months.
Raymond James has been a fast-growing firm through recruiting top wirehouse advisers and making key acquisitions, such as brokerage firm Morgan Keagan. The St. Petersburg, Fla-based firm recently reported that it had roughly 6,700 advisers – making it almost as large as UBS.
However, FINRA says the firm’s growth spurt from 2006 to 2014 wasn’t matched by commensurate growth in the firm’s anti-money laundering compliance systems and processes.
The regulator says Raymond James was relying “upon a patchwork of written procedures and systems across different departments to detect suspicious activity,” and that some red flags went unnoticed.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement says Raymond James’ missteps are particularly “egregious” because the firm’s independent broker-dealer had been fined for similar issues in 2012.
Most people expect the food in a three-star restaurant to be tastier than one-star grub and a two-thumbs-up movie to be better than a flick that got a solitary upward-pointing thumb. Good luck, however, finding a handy way to rank stockbrokers.
That needs to change, because new research shows the most valuable information about brokers emerges only when you can compare them and their firms industry-wide.
The Financial Industry Regulatory Authority, which oversees how investments are sold, maintains BrokerCheck, a database and website that provides information on nearly 1.27 million current and former brokers. A study by Finra last fall found that BrokerCheck data could reliably predict which brokers are most likely to harm their clients.
And so you could, if you had open access to all the data Finra collects on BrokerCheck. But, contends a new report, the regulator keeps such a tight hold that the service doesn’t tell investors what they need to know.
But those who have been active since before 2000, and those whose colleagues have a history of misconduct, are much more likely to generate complaints from customers, according to the new analysis.
Those insights emerge only from analyzing oceans of data on brokers and their firms — an absurdly impractical task for ordinary investors looking up BrokerCheck records one at a time.
How much should you worry if a broker settled a complaint for $25,000? Are four arbitrations in 27 years a lot or a few? Have 13 out of 14 of the other employees in your broker’s office had complaints lodged against them? There’s no way outsiders with conventional computing power can tell. Nor can investors readily figure out which firms have the most employees with marks on their records.
And that matters — a lot — because taking advantage of clients seems to be contagious.
Brokers whose colleagues have spotty track records end up harming investors much more often, the new report says.
An unrelated recent study, which looked at some 150,000 brokers at nearly 1,000 firms, found that in the wake of a merger between firms, the average broker becomes over one-third more likely to incur customer complaints if his or her new brokerage colleagues have a history of misconduct.
Yet another analysis, released last month by economists at the University of Minnesota and the University of Chicago, found that brokers with a history of complaints were snapped up by other firms rather than being driven out of the industry.
So, before hiring a broker, you should know the disciplinary record of his or her colleagues. Even a report from Finra itself last fall drew a similar conclusion.
The latest study was conducted by Securities Litigation and Consulting Group, a research firm in Fairfax, Va. Part of its business is providing expert-witness testimony in arbitration proceedings against brokers and their firms. Still, “my incentives don’t change the arithmetic,” says SLCG founder Craig McCann, a former economist at the Securities and Exchange Commission.
The study bases its analysis on Finra’s own standards for judging whether investors were harmed; it replicates several of the regulator’s findings from last fall almost exactly. Finra’s chief economist, Jonathan Sokobin, says the SLCG report “essentially validated our results.”
(WealthManagement.com) A new crop of broker-dealers and funding portals are forming to capitalize on new equity crowdfunding rules.
The total number of Financial Industry Regulatory Authority (FINRA) member retail brokerages has been on the decline for the last five years, but one sliver of the universe is showing new signs of life: A new crop of broker/dealers and online funding portals are joining FINRA to capitalize on new opportunities made possible by the JOBS Act of 2012. The legislation prompted the SEC to make it easier to market and solicit investments, and opened the door for small businesses to engage in so-called “equity crowdfunding.”
About 15 to 20 of these new firms have signed on since 2013, according to Fishbowl Strategies, with another three to six launching soon, in anticipation of a wave of issuers and investors entering the market. Whether there is a crowd for equity crowdfunding remains to be seen.
But Paul Boyd, managing partner at ClearPath Capital Partners, a wealth management firm for tech entrepreneurs, says there
is plenty of pent-up demand and a backlog of Reg D deals that are moving forward.
Boyd also expects the next phase of the JOBS Act, Title III, will bring a lot more attention to capital raises online. Set to go into effect in May, those rules let any investor, accredited or not, invest in unregistered securities online (with limits on the amounts that can both be invested, and raised, in a year). The tech-fueled vision of bypassing stuffy financial intermediaries in favor of a new-class of SEC-registered and FINRA member “crowdfunding portals” has inspired a flotilla of startups to enter the space.
Many of the new entrants have affiliated agreements with brokerdealers. Some have launched their own b/ds.
WealthForge launched its own b/d to provide all the services needed to complete a private securities transaction, including investor accreditation, regulatory filings and escrow. Co-founder and CEO Mat Dellorso says the new rules—and bringing the process online—have spurred their growth.
“When you bring the internet and you’re allowed to advertise a private security through 506(c), more investors do take part,” he says. WealthForge has completed 150 private financing transactions, bringing in 2,500 investors. “A traditional investment bank might complete three or five a year,” he says. “It’s a lot more volume because it’s more transparent and online now.
“Normally these transactions take weeks and months, but an investor can literally invest in a private placement on our platform in a matter of minutes,” he says.
Dellorso doubts they will do much work with firms looking to raise capital through the exemptions for non-accredted investors.
CircleUp is another new broker-dealer with a focus on consumer products and retail companies. Bhakti Chai, which makes Fair Trade Certified tea, raised nearly $865,000 on the platform.
Folio Institutional, a self-clearing broker/dealer, saw the interest around equity crowdfunding and decided to launch an online equity and debt-funding platform in September. Since the firm can custody the securities, it can enage in secondary-market transactions and, potentially, public offerings.
(MarketsMuse.com)–Blythe Masters, once considered the “Babe of BrokerDealers” in view of her long tenure at investment bank JPMorgan—which included her being credited for helping to create credit default swaps (CDS), has since aspired to be known as the Blockchain Batgirl through her new role as CEO of the bitcoin-buttressed startup Digital Asset Holdings.
Despite the fact Ms. Masters is undeniably a bona fide member of any Masters of the Universe Club (sic Tom Wolfe/Bonfire of the Vanities)—and however much “blockchain technology” has inspired a cadre of banks and broker-dealers to get on board a train that could evolutionize the financial industry at large, and despite a potential death-knell magazine cover story in October of this year courtesy of Bloomberg Magazine, Masters’ foray into the world of fintech startup funding is proving to be bumpy at best, as the blue ocean this blue-eyed blonde s is swimming in is already populated with migrant banker’s bodies floating ashore and otherwise left beside the yellow-brick road to billion dollar Unicorn valuations.
Notes NY Times business news journalist Nathaniel Popper—one of the 4th estate’s leading bitcoin industry experts, Digital Asset Holdings is running into the types of startup funding challenges that mostly all mortals encounter when pitching ideas scrapped from a whiteboard: questionable valuation, untested technology value proposition, a highly-fragmented and often dysfunctional target audience, and last but not least, an investment structure that is being increasingly challenged for giving preferential ownership treatment to a select group of early investors. In this case, Digital Asset Holdings is providing a very sweet deal and a very exclusive suite of follow-on round financing options to its anchor investor, which happens to be her former employer, JPMorgan.
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The Financial Industry Regulatory Authority (FINRA) has fined Cantor Fitzgerald $6 million and ordered it to pay $1.3 million for commissions, plus interest, it received from selling billions of unregistered microcap shares in violation of federal law in 2011 and 2012.
Jarred Kessler, Former Head of Equities for Cantor Fitzgerald
In addition, FINRA suspended Jarred Kessler, executive managing director of equity capital markets, for three months in his principal role at the firm and fined him $35,000 for supervisory failures, while equity trader Joseph Ludovico was suspended for two months and fined $25,000. The suspension is a moot point, as Kessler resigned from his role as head of equities for global broker Cantor last week. The regulator also sanctioned Cantor for not having adequate supervisory or anti-money laundering programs to detect “red flags” or suspicious activity tied to its microcap activity.
“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses. This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement.
“FINRA has no tolerance for firms and business executives who choose to engage in this business without robust systems designed to ensure that they do not become participants in illegal, unregistered distributions,” Bennett said.
In settling this matter, Cantor Fitzgerald neither admitted nor denied the charges, though it did consent to FINRA’s findings.
According to FINRA, the broker-dealer did not sufficiently guide or train employees in the sale of billions of thinly traded microcap shares. Furthermore, it did not put into place an anti-money laundering program to detect patterns of potentially suspicious money laundering activity related to these sales.
Kessler, it says, knew that the expanding microcap business “posed unique challenges and was generating an increasing number of regulatory inquiries, but nonetheless delegated his supervisory responsibilities to a central review group without taking sufficient steps to investigate the adequacy of their efforts.”
Kessler resigned from the firm last week, ending a 5-year stint as head of equities. Cantor Fitzgerald declined to comment on the matter.
Following his departure, Kessler’s responsibilities will be handled by members of Cantor Fitzgerald’s executive management for equities Adam Mattessich, Darren Taube, and Peter Cecchini, according to a person with knowledge of the move, who asked not to be identified discussing a private matter. An external spokesman for the investment bank at Powerscourt in London didn’t return phone calls requesting comment about the replacements.
Cantor Fitzgerald’s Howard Lutnick hired Kessler in January 2011 as part of a push to transform the company from a bond broker into a full-service investment bank. Kessler, who joined from Credit Suisse Group AG, previously held roles with Morgan Stanley and Goldman Sachs Group Inc.
Cantor has offices in more than 30 locations globally and employs about 1,600 people.
