South Florida Arbitration & Litigation Lawyer Blog
Theft and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
January, 2010:
J.J.B. Hilliard,W.L. Lyons, LLC (CRD #453, Louisville, Kentucky) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $200,000 and required to place $133,817 into a segregated, interest-bearing account for a period of five years to reimburse customers who can reasonably demonstrate that they made deposits to their firmaccounts at a bank branch and that the firm failed to properly credit the deposits to their accounts. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to have an adequate supervisory system, including written supervisory procedures and a supervisory control system, to properly and timely identify customer checks deposited at affiliated bank branches and ensure that all customer check deposits were duly credited to the appropriate customer accounts. The findings stated that the firm escheated approximately $133,616.65 in funds to the Commonwealth of Kentucky when it was unable to identify the proper customer accounts. The findings also stated that, as a result of the unidentified customer check deposits, the firm failed to make and keep accurate daily records of all receipts and disbursements of cash and other debits and credits in its books and records, including entries to an Escheatment Account. The findings also included that the firmunderstated its net capital charges and incorrectly calculated its Customer Reserve Formula. In addition, the findings included that the firm produced inaccurate month-end customer account statements, incorrectly liquidated certain customer fully paid securities, and failed to segregate some customers’ fully paid securities, resulting in intra-day possession or control deficits.
FINRA found that the firm did not prepare required inter-company account reconciliations, failed to properly record certain aged unfavorable reconciliation differences and failed to conduct supervisory reviews of certain reconciliations and accounts. FINRA also found that the firm’s supervisory procedures did not adequately ensure that its research analysts obtained the required approval for public appearances and provided proper disclosures during such public appearances. In addition, FINRA determined that the firm issued certain research reports that contained indefinite "may" language regarding future investment banking services that the firmexpected to provide, did not include analyst certifications on the front page, contained front pages that did not specify the page or pages in the research report on which the analyst certifications were to be found, and incorrectly included the analyst certification information as part of the important disclosures. (FINRA Case #2007009463801).