FINRA Sanctions First Clearing LLC for Failure to Provide Accurate Valuations on REITs & DPPs
According to the Financial Industry Regulatory Authority (FINRA) on November 5, the regulator reportedly censured and fined broker-dealer First Clearing LLC (Wells Fargo Clearing Services, LLC CRD No. 19616) $300,000 in connection with alleged failure to provide accurate valuations on REITs & DPPs, as well as supervisory issues.
According to a Letter of Acceptance Waiver & Consent, this matter reportedly originated from a customer complaint made in August 2016 to FINRA’s Senior Help Line regarding inconsistent values reflected on her account statements regarding a REIT she had previously purchased.
From April 2016 through October 2016, First Clearing distributed 6,851 account statements to customers containing valuation information for one or more Direct Participation Programs (DPPs) or Real Estate Investment Trusts (REITs) that did not comply with FINRA rules, according to the AWC.
In one example, an account statement showed the per-share estimated value of a customer’s REIT at $14.72, when the security’s rule-compliant per-share valuation at the time was approximately $0.90.
The firm reportedly sent these statements containing noncompliant valuations to more than 2,300 customers. During the same period, First Clearing allegedly failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to ensure that its customer account statements reflected DPP and REIT prices derived from a valuation methodology allowed by FINRA rules.
Further, the firm also purportedly failed to maintain accurate books and records relating to monthly and quarterly statements for customer accounts containing DPPs and REITs.
First Clearing LLC (Wells Fargo Clearing Services) accepted the sanctions on November 4, 2020.
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