FINRA Arbitration Lawyer, Russell L. Forkey, Esq.

June, 2011:

Monex Securities, Inc. (CRD #30362, Houston, Texas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $25,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders. The findings stated that the firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. The findings also stated that many of the firm’s foreign finders were previously registered foreign associates at the firm who worked on the premises of the firm’s affiliated broker-dealer. The findings also included that as registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals. FINRA found that when the firm’s foreign associates’ registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder; the firm’s foreign finders’ sole involvement with the firm should have been the initial referral of non-U.S. customers. FINRA also found that all of the firm’s foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts; these activities went well beyond the initial referral of non-U.S. customers to the firm. In addition, FINRA determined that given the expanded roles of the firm’s foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates. Moreover, FINRA found that a concerned customer visited the firm’s affiliate’s branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firm’s clearing firm; the firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. Furthermore, FINRA found that the firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder; the unauthorized statements inflated market values and net worth; and its rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them. The findings also stated that the firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customers’ account values by over $2 million U.S. dollars. The findings also included that the investigation led to the rogue foreign finder’s termination, foreign finders being discontinued, written supervisory procedures being added, the firm’s supervisory system being enhanced and substantial compensation paid to affected customers. FINRA found that the firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way. (FINRA Case #2008014078801).