South Florida Arbitration & Litigation Lawyer Blog
Negligent Supervision, Unsuitability and Over Concerntration FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
March, 2012:
Petersen Investments, Inc. (CRD #38537, Wall, New Jersey) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $15,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish and maintain a supervisory system and written procedures reasonably designed to ensure its registered representatives’ compliance with applicable securities laws, regulations and FINRA’s rules. The findings stated that the firm’s systems and written procedures for about five years were not reasonably designed to detect and monitor for unsuitable recommendations, trading in low-priced securities, churning and concentrations in one security; the procedures in place at the time stated that a Series 24 Supervisor would conduct, on a daily basis, a review of all trades, taking into consideration, among other things, whether any trades involved unsuitable recommendations, trading in low-priced securities, churning and concentrations in a security, but the supervisory procedures did not provide guidance or in any way describe how the reviewer should perform such reviews, what kinds of detected activity might warrant further investigation, how to further investigate such activity and how supervisors were to document such reviews. The findings also stated that the supervisory structure outlined what the reviewer should look for but did not provide tools or systems to assist the reviewer in identifying and addressing problems. The findings also included that the procedures required a designated Series 24 Supervisor to review, on a monthly basis, commission reports for all accounts and consider, among other things, churning, suitability and accounts dealing primarily in speculative securities. FINRA found that as with the trade reviews, the procedures did not provide instruction on how specific reviews were to be conducted and documented, and what type of follow up should occur if problematic activity was detected. (FINRA Case #2009020013201).