South Florida Arbitration & Litigation Lawyer Blog
Broker/Dealer and Investment Advisor Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
February, 2012:
The Carson Medlin Company (CRD #28567, Tampa, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $20,000. FINRA imposed a lower fine after it considered, among other things, the firm’s revenues and financial resources. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to retain all business-related electronic communications and failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure that all electronic communications relating to its business were retained. The findings stated that the storage of the firm’s emails was handled pursuant to a third-party contract with a consulting firm, which handled all of its technological functions. The firm did not provide notification to FINRA regarding its use of electronic storage media for its emails as required, and the emails were not maintained in a non-erasable format. There were large gaps in some of the email accounts of the firm’s representatives. Each associated person had the ability to permanently delete emails from the firm’s electronic storage server; backup tapes were reused after a short period of time so that emails associated persons deleted were retained only until the backup tapes were reused. As a result of the firm’s back-up process, FINRA was unable to review certain of the emails of former associated persons who had recently been terminated, and who had deleted their emails prior to leaving the firm, which impeded FINRA’s examination.
The findings also stated that the firm failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to supervise the types of businesses in which it engages, and the activities of its registered and associated persons, in that it failed to establish WSPs addressing certain aspects of its private placement business and the gathering of customer information and identification material. With respect to the firm’s private-placement business, it did not maintain certain of the required books and records, such as subscription agreements and order memoranda, or confirmations reflecting investments in private placements. The firm failed to create and maintain records of customer account information, subscription agreements, investor questionnaires and evidence of principal approval for transactions the firm facilitated. The findings also included that although the firm received compensation for its services as a placement agent and was involved with soliciting and selling the offerings, it did not maintain copies of certain of the sales documents, obtain customer information or supervise the sales for suitability.
FINRA found that the firm’s WSPs were inadequate regarding private placements in that they did not address the documentation of customer account information, documentation of customer suitability information, maintenance of documents required for private placements, review and approval of customer accounts and transactions involving the sale of private placements. FINRA also found that the firm’s AMLCP was not adequately designed to fit the needs of its business. In spite of the fact that it acted as a finder or placement agent in connection with private placements and private financing transactions, its Customer Identification Program (CIP) was nonexistent. The firm’s CIP did not recognize private-placement investors as being customers of the firm because the investors did not have accounts at the firm. Consequently, the firm failed to obtain required information from investors who purchased private placements and therefore, failed to implement an adequate CIP in connection with private placements as the Bank Secrecy Act required. In addition, FINRA determined that the firm conducted tests of its AML compliance program but did not review its transactions in private offerings. (FINRA Case #2010021128601).