FINRA Warns of Sharing Commissions with Unregistered Individuals and Providing False Information to Firms

(FINRA publishes a quarterly review to provide firms with a sampling of recent disciplinary actions involving misconduct by registered representatives. This sample includes settled matters and decisions in litigated cases (National Adjudicatory Council (NAC) decisions and SEC decisions in FINRA cases). These summaries call attention to, and remind registered representatives and member firms of, specific conduct that violates FINRA rules and may result in disciplinary action.)

This information appeared on FINRA's website, October, 2012.

Sharing Commissions With an Unregistered Individual and Providing False Information to Firm

FINRA settled a matter involving a registered representative who shared commissions with an unregistered person who operated a business out of the same office space, and misled his member firm as to whether any other businesses operated out of the branch office location.

This unregistered individual had been associated with a member firm and worked with the registered representative in years prior. He had attempted to associate with the registered representative’s firm, but the firm was unwilling to allow him to associate because of his disciplinary history. During a period of 16 months, the unregistered person conducted research and provided the registered representative with stock recommendations that the registered representative relayed to his own customers. In exchange for the stock recommendations, the registered representative paid the unregistered person approximately 40 percent of his brokerage commissions, totaling approximately $255,000, without disclosing the commission payment arrangement to the member firm. FINRA found that that the representative’s conduct violated NASD Rule 2420 (dealing with non-members) and FINRA Rule 2010 (ethical standards).

FINRA found that during this period, the registered representative also submitted a false and misleading compliance questionnaire to his member firm. On the questionnaire, the registered representative denied that any other businesses were located in the branch office when, in fact, the unregistered individual operated his business out of the same office. By signing and submitting an incorrect compliance questionnaire to the member firm, the registered representative caused the firm’s books and records to be incorrect, and he concealed from the firm that the person it previously had rejected for association was in fact working out of firm office space. FINRA concluded that the registered representative’s actions violated NASD Conduct Rule 3110* (books and records) and FINRA Rule 2010 (ethical standards). In light of these violations, FINRA suspended the representative in all capacities for one year and fined him $20,000.
(This ends the FINRA article.)

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