Firm Sanctioned for Failing to Reasonably Supervise Recommended Securities Transactions and Use of Consolidated Reports
WASHINGTON—FINRA announced today that it has sanctioned Summit Brokerage Services, Inc. (Summit) a total amount exceeding $880,000 for supervisory failures, including approximately $558,000 in restitution to customers whose accounts were excessively traded by a former registered representative of the firm who was previously barred by FINRA.
FINRA found that from January 2012 through March 2017, Summit, a firm with more than 700 registered individuals, failed to review certain automated trade alerts for its registered representatives’ trading activity. Specifically, Summit failed to review alerts that would be used to identify excessive trading. As a result, the firm failed to detect that one representative in particular, identified by FINRA as “CJ,” excessively traded securities in the accounts of 14 customers. For example, CJ placed 533 trades for a retired customer over a three-year period, causing her to pay more than $171,000 in commissions. For the 14 customers whose accounts were excessively traded, CJ’s trading generated more than 150 alerts for potentially excessive trading. Summit received those alerts, but no one at the firm reviewed them. Summit agreed to pay restitution to affected customers in the amount of the commissions they were charged as a result of the excessive trading in their accounts. FINRA previously barred CJ in a separate disciplinary action.
“In this matter, the affected customers paid hundreds of thousands of dollars in commissions as a result of the excessive trading that occurred in their accounts,” said Susan Schroeder, FINRA’s Executive Vice President, Department of Enforcement. “This enforcement action reflects the fact that obtaining restitution for harmed customers remains our highest priority.”
FINRA also found that from June 2015 through March 2018, Summit failed to reasonably supervise its representatives’ use of “consolidated reports,” documents provided to customers summarizing the customer’s financial holdings, including assets held away from the firm. FINRA has issued Regulatory Notices reminding member firms that, if not rigorously supervised, consolidated reports can raise concerns, including the potential for communicating inaccurate, confusing or misleading information to customers. Summit prohibited registered representatives from sending consolidated reports unless they used a template that the firm had reviewed and approved. However, FINRA found that the firm did not have a reasonable system to track whether its representatives complied, and although approximately 100 Summit representatives sent their customers consolidated reports during this period, only eight received the required review and approval. One consolidated report sent by a registered representative of the firm to a customer materially misstated the value of the customer’s investment.
In settling this matter, Summit neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.