Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to supervise the personal trading of research analysts who maintained discretionary accounts at other firms. The findings stated that the firm’s WSPs mandated compliance department review of personal trading of research analysts but, as a matter of policy, the firm did not require compliance review of analyst accounts over which discretionary trading authority had been granted to a third-party manager or advisor.

As a result of that policy, the firm did not review the personal trading of two research analysts who held discretionary accounts at other firms. The findings also stated that the firm issued equity research reports that failed to comply with NASD Rule 2711(h) disclosure requirements. In some research reports in which it disclosed that it had served as manager or co-manager of a public offering of securities for the subject company in the preceding 12 months, it failed to disclose also that it had received compensation from the company for investment-banking services in connection with the offering. One research report failed to disclose that the firm had served as manager or co-manager of a public offering for the company in the preceding 12 months.

Research reports failed to disclose that the firm was a market maker in the subject company’s securities at the time the report was published. Some research reports were issued with indefinite disclosure regarding financial interests held in the securities of the subject company. Other research reports were issued with disclosures not prominently presented. The findings also included that, in connection with two public appearances by firm research department personnel, the firm failed to disclose its receipt of compensation from the subject company in the preceding 12 months. FINRA found that the firm maintained on its company website a list of all companies its research analysts covered, and for each company listed, the firm provided its current rating and price target for the company’s stock, but failed to include the disclosures mandated by NASD Rule 2210(d) and IM 2210-1(6)(a) with respect to potential conflicts of interest.

This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.

To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

FINRA Rule 2510

FINRA Rule 2510 addresses the obligations of members that have discretionary power over a customer’s account.

Rule 2510(a) (excessive transactions/excessive trading) prohibits members and their agents or employees that have discretionary power over a customer’s account from effecting any excessive transactions in view of the financial resources and character of such discretionary account.

Rule 2510(b) (authorization and acceptance of account) provides that a member or registered representative may not exercise any discretionary power in such account unless the customer has given prior written authorization to a stated individual, and the account has been accepted in writing by the member or a designated partner, officer or manager of the member.

Rule 2510(c) (approval and review of transactions) requires that a member or a designated partner, officer or manager of the member approve promptly in writing each discretionary order entered and review all discretionary accounts at frequent intervals to detect and prevent excessive transactions.

NYSE Rule 408

NYSE Rule 408(a) prohibits members and their employees from exercising discretionary power in a customer’s account without first obtaining: (1) the customer’s written authorization (substantially similar to FINRA Rule 2510(b)); (2) the signature of the person authorized to exercise discretion in the account (similar to FINRA Rule 3110(c)(3)(A)); and (3) the date such discretionary authority was granted (similar to FINRA Rule 3110(c)(3)(B)).

NYSE Rule 408(b) requires that: (1) employees notify a supervisor and obtain his or her prior approval before exercising discretionary power in a customer’s account; (2) the supervisor frequently reviews the account; and (3) members maintain a written statement of the supervisory procedures governing such accounts. The rule further requires that an order entered on a discretionary basis by an employee be identified as discretionary on the order ticket (similar to SEA Rule 17a-3(a)(6)(i)).

FINRA proposed to transfer FINRA Rule 2510 into the Consolidated FINRA Rulebook as FINRA Rule 3260 with certain changes that take into account requirements under NYSE Rule 408. Please see NTM 09-63 for the specifics on the proposed changes.

If you have questions about discretionary accounts, or if you believe that you have been the victim of a securities fraud, the Law Offices of David A. Carter, P.A. may be able to help. The Law Offices of David A. Carter, P.A. is a South Florida securities fraud, securities arbitration, investor protection, and Chapter 7 bankruptcy law firm based in Boca Raton. David Carter is a securities attorney that reviews securities fraud cases throughout the country and Florida, including securities fraud cases in Tallahassee, Jacksonville, Sarasota, Tampa, Orlando, Daytona Beach, Naples, Fort Myers and Port Charlotte. To contact the Law Offices of David A. Carter, P.A., please call 561-750-6999, or email us at contact@carterpa.com. For more information about the Law Offices of David A. Carter, P.A., you can also visit our website at www.carterpa.com.