South Florida Arbitration & Litigation Lawyer Blog
FINRA Negligent Supervision and Selling Away Arbitration Attorney, Russell L. Forkey, Esq.
August, 2011:
Deutsche Bank Securities Inc. (CRD #2525, New York, New York) and Adrienne Barrett Tubridy (CRD #1570968, Registered Supervisor, Marblehead, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $350,000. In assessing the fine, FINRA took into account financial benefits the firm obtained, and the firm’s discovery, reporting, investigation and corrective measures are reflected in the sanctions. Turbridy was fined $10,000, suspended from association with any FINRA member in any supervisory capacity for 10 days and required to cooperate with FINRA in its prosecution of any other disciplinary action related to these events by, among other things, meeting with and being interviewed by FINRA staff without the need of staff to resort to FINRA Rule 8210, and testifying truthfully at any related hearing. Without admitting or denying the findings, the firm and Tubridy consented to the described sanctions and to the entry of findings that the firm held contractual agreements with third-party investment advisers who provided financial services to firm customers through the firm’s adviser select program for a fee the customers paid, and the firm customers granted discretionary trading authority to the third-party advisers. The findings stated that the agreements contained a confidentiality clause prohibiting firm employees from using the third-party advisers’ portfolio recommendations for other clients. The findings also stated that the firm instituted a written policy and procedure manual distributed to firm employees, including Tubridy, that contained guidelines related to the adviser select account and prohibited shadowing adviser select accounts, but the firm did not implement any specific systems to detect and prevent shadowing; no exception reports were created to identify shadowing, no applicable training was conducted, and no supervisory systems were put in place to monitor accounts for possible shadowing. The findings also included that in one branch office while Tubridy was responsible for performing trade reviews, shadowing was egregious and continued for years.
FINRA found that even though the firm did not implement exception reports to identify shadowing, shadowed trades were flagged for other reasons, which required Tubridy to follow up; she examined and approved shadowed trades on the exception reports, made notations on certain trades, which indicated an awareness of shadowing, but failed to follow up on the information and neglected to raise the issue with compliance or her supervisors. FINRA also found that through shadowing, firm registered representatives circumvented the fee arrangement the firm had in place for the adviser select program and violated the provisions of confidentiality agreements prohibiting the use of the third-party investment advisers’ proprietary information. In addition, FINRA determined that the firm and involved registered representatives failed to pay a combined total of over $200,000 to third-party investment advisers. Moreover, FINRA found that the firm failed to establish, maintain and enforce an adequate supervisory system to detect and prevent shadowing, and Tubridy failed to recognize and follow up on "red flags" of shadowing. Furthermore, FINRA found that once the firm learned that shadowing had occurred, with Tubridy’s assistance, it conducted an extensive and immediate internal investigation across all branch offices to identify and halt any other shadowing activity.The suspension was in effect from August 1, 2011, through August 10, 2011. (FINRA Case #2008013864402).