A broker-dealer agreed to a censure and a $20,000 fine to settle FINRA charges for failing to have an adequate supervisory system as well as written supervisory procedures ("WSPs") to detect and prevent non-bona fide transactions or to comply with applicable reporting rules regarding such non-bona fide transactions.
According to the Letter of Acceptance, Waiver and Consent, Torino Capital LLC ("Torino") executed numerous transactions with another broker-dealer that would sell securities to Torino (or buy securities from Torino) and then buy or sell them back at prices that allowed Torino a small but safe profit. After Torino reported these trades to the market, the broker-dealer would execute trades with the customers of an affiliated adviser at prices based on Torino's public reports. The resulting profits to the broker-dealer were more favorable than they would have been without the assistance of Torino.
Torino's WSPs failed to identify (i) the person(s) responsible for supervisory reviews to detect and prevent non-bona fide transactions, including the prearranged transactions, (ii) the supervisory steps to be taken by such person(s), (iii) the frequency of such supervisory reviews and (iv) how the supervisory reviews were to be documented.
Torino neither admitted to nor denied the FINRA findings.
Commentary / Steven Lofchie
Though the complaint does not allege that personnel were aware of the reason for the improper transactions, any trader should realize that there is something not right when offered the opportunity to execute wash trades at a small, assured profit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
