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13 Investment Firms Face Millions in Fines for Recordkeeping and Disclosure Violations

May 26, 2017 Blog

The Financial Industry Regulatory Authority (FINRA), the oversight entity authorized by Congress to take action against investment advisors and advisory firms that harm investors, recently announced that it has fined thirteen investment firms more than $17.5 million for recordkeeping and disclosure violations. The firms facing fines are:

  • Deutsche Bank
  • First Clearing, LLC
  • Georgeson Securities Corporation
  • LPL Financial LLC
  • PNC Capital Markets LLC
  • RBC Capital Markets LLC
  • RBC Capital Markets Arbitrage S.A.
  • RBS Securities, Inc.
  • SunTrust Robinson Humphrey, Inc.
  • Wells Fargo Advisors, LLC
  • Wells Fargo Advisors Financial Network, LLC
  • Wells Fargo Prime Services, LLC
  • Wells Fargo Securities, LLC

The majority of the firms (all except for Deutsche Bank) were fined for cybersecurity issues that, according to FINRA, “affected millions, and in some cases, hundreds of millions, of records pivotal to the firms’ brokerage businesses.” FINRA separately imposed a $3.25 million fine against Deutsche Bank for failing to provide consistent disclosures to clients using its Alternative Trading System and related disclosure violations.

Failure to Protect Client and Broker-Dealer Records from Alteration

Under federal securities laws and FINRA’s rules governing investment advisory firms, firms are required to maintain client, broker-dealer and other electronic business records in “WORM” format. “WORM” is an acronym for “write once, read many,” which essentially means that a file cannot be altered once it has been produced. According to FINRA, the twelve firms other than Deutsche Bank listed above failed to comply with this requirement, and in doing so potentially compromised the integrity of hundreds of millions of files. While the fines relate solely to the firms’ failure to meet the requisite standards for cybersecurity, FINRA and the SEC have noted that failure to meet these standards can potentially raise issues with regard to antifraud protections and advisory firms’ financial responsibility.

Investors and Trading Firms Provided with Incomplete Information

In an unrelated enforcement matter, Deutsche Bank consented to a $3.25 million fine following allegations that it had provided inconsistent and incomplete disclosures to clients regarding its Alternative Trading System (ATS). Investment firms use ATS facilities to match counterparties to investment transactions. According to FINRA, Deutsche Bank, “failed to timely or completely disclose to all users the availability of certain ATS services and features, most of which involved the ability to include or exclude counterparties . . . against whom orders would execute.”

FINRA’s disclosure rules regarding ATS facilities are designed to ensure that investors are trading on an equal playing field. While FINRA did not charge Deutsche Bank with being inappropriately selective in the disclosure of confidential information about its ATS, as stated by a high-ranking FINRA representative, “Broker-dealers that operate an ATS must provide complete and accurate information to . . . ensure that customers using the trading platform are not disadvantaged.”

Zamansky LLC | Attorneys for Investors Nationwide

Zamansky LLC is a national investment fraud law firm that represents individual investors who have experienced fraudulent losses in FINRA arbitration. To speak with an attorney at our offices in New York City, please call (212) 742-1414 or inquire online today.