FINRA gets tough on Private Securities Transactions
In a published article, FINRA suspended a former independent advisor with Ameriprise Financial, Jonathan M. Turner, for three months and imposed a $5,000 fine for failing to provide written notice to the firm that he participated in a private securities transaction in violation of FINRA Rules 3280 and 2010. According to the article, Turner accepted a position with a credit card processing service and “helped raise $200,000 for the company from two customers registered with Ameropise.”
The advisor was not compensated for his services and further compounded his error when he “falsely certified on an annual compliance survey in January 2020 that he had not engaged in any unapproved private securities transactions.”
FINRA Rules 3270 (LINK) and 3280 (LINK) require registered representatives to provide written notice to their associated broker-dealer prior to participating in any outside business activity or private securities transaction.
Rule 3270 governs outside business activities and states “a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person’s responsibilities to the member and/or the member’s customers or (2) be viewed by customers or the public as part of the member’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered.”
FINRA Rule 3280(e)(1) defines a private securities transaction as any securities transaction outside the regular course or scope of an associated person’s employment with a member.
According to FINRA, a violation of FINRA Rule 3280 is also a violation of FINRA Rule 2010, which requires an associated person, in the conduct of his business, to observe high standards of commercial honor and just and equitable principles of trade.
Advisors must be very careful when they are presented with an opportunity or are asked to introduce clients to investments or other private securities transactions outside of the scope of their employment. Similarly, advisors must take great care in disclosing any activity that could be construed as an outside business activity. If you have any intention of participating in either, you must first give your firm written notice and obtain approval prior to participating in any way. Likewise, all firm’s should have written supervisory procedures in place requiring such notice/approval as well as an annual attestation requiring disclosure which could form the basis for an advisor’s termination from the firm if the advisor does not give proper notice or answer the attention truthfully.
It is wise to seek the advice of an experienced securities regulatory attorney, Gregory Tendrich, before you engage in an outside business activity or a private securities transaction. Failure to do so could lead to an inquiry from your firm or FINRA. An inquiry from either will likely result in a mark on your U4/U5 and in many cases will lead to a termination and possible sanction from FINRA and state securities regulators. Before that happens, call for a free initial consultation, 561-417-8777 or fill out our contact form.