FINRA has hit Wedbush Securities with a $1.5 million fine for violating the SEC’s consumer protection and net capital rules, as well as for supervisory lapses and failures in books and records keeping.
The SEC Customer Protection rule requires that customers’ funds and securities are guarded and ensures clients’ abilities to recover their assets in the event of the broker-dealer’s insolvency. The rule demands that the BD maintain physical possession or control over certain securities and that they must be kept in a “control location” that is “free of liens or any other encumbrance that could prevent customers from taking their possession,” FINRA said in a statement announcing the fine.
The rule also mandates that firms like Wedbush maintain in a bank account a reserve of cash or qualified securities that is at least equal in value to the net cash the company owes its clients.
The SEC Net Capital rule requires that broker-dealers maintain a minimum capital requirement to protect the firm’s clients.
During a five-month period in 2015 and 2016, FINRA says it found that Wedbush was deficient of those capital requirements, ranging between $10.5 million and $59.4 million. These deficiencies, FINRA found, were the result of Wedbush failing to take the required deductions when valuing certain certificates of deposit for gauging its net capital.
FINRA also says it found that from 2011 to 2016 Wedbush did not accurately calculate its customer reserve requirement on 84 occasions. This resulted in the firm underfunding its reserve account 73 times in amounts ranging from $2 million to $77 million.
FINRA goes on to accuse Wedbush of continuously violating the possession or control requirement of the customer protection rule between 2009 and 2016. The firm is also said to have failed to establish supervisory systems designed to ensure it complied with these two rules.
"Firms have a fundamental responsibility to safeguard the securities of their customers," Susan Schroeder, FINRA's executive vice president for the Department of Enforcement, said in the statement. "The Customer Protection and Net Capital Rules are important components of investor protection, and member firms must have reasonably designed and maintained systems and supervision to ensure both that they comply with the rules' requirements, and detect and remediate any weaknesses."
In agreeing to settle the matter Wedbush did not admit nor deny the charges, FINRA said.
“We’re pleased that there has been a resolution to this matter and [we] can move forward,”
Wedbush’s Natalie Svider, senior vice president and marketing director said.
This isn’t the first time Wedbush has been fined by FINRA or faced a ruling that wasn’t in the firm’s favor. In August 2016, FINRA upheld a ruling to fine Wedbush founder Edward Wedbush $50,000 and suspend him for 31 days for allegedly failing to supervise mandated regulatory filings. During that same month the firm dropped its appeal of a $1 million FINRA fine relating to alleged reporting violations.
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