South Florida Arbitration & Litigation Lawyer Blog
Margin Abuse and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
November, 2011:
Legent Clearing LLC, dba Legent Clearing (CRD #117176, Omaha, Nebraska) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $200,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it cleared transactions in accounts a former FINRA member firm introduced, including a corporate account the former member firm’s customer, an entity, maintained. The findings stated that the trading activity in the entity’s account generated multiple margin calls. The findings also stated that through a course of conduct FINRA later determined involved improper agreements, misleading statements and omissions to disclose material information by the entity and the former member firm, the entity acquired control over assets in qualified and non-qualified accounts customers of another former FINRA member firm previously owned and controlled. The findings also included that those assets, including assets previously held in qualified accounts, were transferred into the entity’s account held at the firm, where they secured margin debits resulting from options trading and short-selling. FINRA found that the firm provided material assistance to the former member firm and the entity in connection with their efforts to obtain additional assets in the entity’s account in order to support continued trading on margin. FINRA also found that although there were relevant facts that the former member firm and the entity withheld from, or misrepresented to, the firm, the firm was, or should have been, aware of other facts and circumstances that should have caused it to decline to take, or to inquire further before taking, certain actions the former member firm and its customer requested, which facilitated the asset transfers and placed the other former member firm customers at risk of loss; more specifically, two senior managers of the firm, who are principals, had access to facts and circumstances that, at the very least, should have prompted them to inquire further regarding the nature of the assets being transferred. In addition, FINRA determined that as a result of trading in the entity’s account after it was transferred from the firm to another broker-dealer, some customer assets were liquidated to meet margin calls, assets that would not have been available for liquidation but for their improper transfer into the entity’s account while it was held at the firm. (FINRA Case #2008013543501).