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Artwork Purchases and Charitable Donations Cited In FINRA Settlement
December 10, 2015If nothing else, Wall Street's reputation over the years has been that of a high-end frat house for overpaid and under-regulated boys. The excesses of the industry's wunderkinder is now the stuff of movies and legend. Drugs. Hookers. Boom Boom rooms. Over-the-top Super Bowl parties. Over-the-edge office renovations. Feel free to add your own sordid examples. If you buy into the public relations campaign orchestrated by those in power, you're supposed to believe that Wall Street's days of excess are behind us -- dead and buried with all those pennystock shops on Long Island and in Florida. You're also supposed to believe that the last shovel of dirt was tossed on Wall Street's grave after the Armageddon of the Great Recession. Hey, you know, whatever floats your boat: believe what you want. A recent FINRA regulatory settlement suggests that we may now be in an era of more refined, how should I politely put it?, "excess." Witness over a half-a-million-bucks in charitable donations. Witness six-figures in art purchases. And then there is FINRA's curious decision to give us the corporate titles of those involved but not their names.
Case In PointFor the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Banca IMI Securities Corp., Respondent submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Banca IMI Securities Corp., Respondent, (AWC 2013038353001, December 1, 2015).- approve travel & entertainment expenses for any employee in his area of authority;
- to carry out any powers the CEO delegated to him;
- and to engage in any of the powers of his subordinated officers subject to governing regulatory qualifications.
(a) All Principals Must Be RegisteredAll persons engaged or to be engaged in the investment banking or securities business of a member who are to function as principals shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1022. Before their registration can become effective, they shall pass a Qualification Examination for Principals appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a principal registration with NASD for any person (1) who is no longer active in the member's investment banking or securities business, (2) who is no longer functioning as a principal, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c). A member shall not make application for the registration of any person as principal where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a principal of a person who performs legal, compliance, internal audit, back-office operations, or similar responsibilities for the member or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.(b) Definition of PrincipalPersons associated with a member, enumerated in subparagraphs (1) through (5) hereafter, who are actively engaged in the management of the member's investment banking or securities business, including supervision, solicitation, conduct of business or the training of persons associated with a member for any of these functions are designated as principals. Such persons shall include:The AWC asserts that JD did not obtain his Series 24: General Securities Principal registration until March 31, 2014, nearly one year after joining Banca IMI Securities in a supervisory capacity. The AWC asserts that given the CAO's supervisory/principal roles, Banca IMI Securities should have ensured that JD's Series 24 registration was in place within 90 calendar days as required under NASD Rule 1021. CEO Spending SpreeIn addition to the unnamed CAO "JD," the AWC further mystifies us with its reference to Banca IMI Securities' former CEO as "JC." As set forth in the AWC during April 2012 to September 2013 (the "Relevant Period"):(1) Sole Proprietors(2) Officers(3) Partners(4) Managers of Offices of Supervisory Jurisdiction, and(5) Directors of Corporations.. . .(d) Application for Principal Status(1) Any person associated with a member as a Registered Representative whose duties are changed by the member so as to require registration in any principal classification shall be allowed a period of 90 calendar days following the change in his duties during which to pass the appropriate Qualification Examination for Principals. Upon elevation, the member shall submit to NASD an amended "Uniform Application for Securities Industry Registration or Transfer" and the applicable fees. In no event may a person function as a Principal beyond the initial 90 calendar day period following the change in his duties without having successfully passed the appropriate Qualification Examination.(2) Any person not presently associated with a member as a Registered Representative seeking registration as a Principal shall submit the appropriate application for registration and the required registration and examination fees. Such person shall be allowed a period of ninety days after all applicable prerequisites are fulfilled to pass the appropriate Qualification Examination for Principals. In no event may a person previously unregistered in any capacity applying for principal status function as a Principal until fully qualified. . .
During the Relevant Period, the Powers and Authorities delegated to JC, as CEO, the authority to authorize expenditures relating to the Firm's contractual commitments, expenses and obligations to third parties other than in connection with trading and sales. Expenses were classified as either "ordinary" or "extraordinary," with ordinary expenses including "all those acts that are necessary in the ordinary course of business." Pursuant to the Powers and Authorities, JC, as CEO, could approve any ordinary expense or commitment less than or equal to $200,000. The Powers and Authorities also delegated to JC, as CEO, the authority to approve extraordinary expenses, i.e., commitments less than or equal to $500,000, but only with the prior approval of the Managing Director of Banca IMI SPA, the Firm's parent company. During the Relevant Period, the Firm's procedures were not reasonably designed to achieve compliance with the applicable securities laws and regulations and FINRA Rules. The Powers and Authorities categorized expenses solely by the total dollar amount incurred and did not provide examples of the types of expenditures that might be deemed extraordinary and outside Banca IMI's ordinary course of business. The Firm's procedures also failed to designate a person or persons responsible for ensuring that expenses were categorized and approved by the requisite individuals, or to set an annual budget for extraordinary expenses incurred by the Firm. Banca IMI's failure to implement appropriate controls and procedures, as well as any supervisory review of JC's delegated authority with respect to expenses, permitted its former CEO to spend, among other things, approximately $186,000 on certain works of art created and sold by his relatives, and to make approximately $518,000 in charitable donations, including gifts to at least four entities with which JC had a personal connection or interest. . .Flawed OversightThe AWC asserts that Banca IMI Securities failed to
- establish and maintain adequate written procedures to supervise the activities of its registered principals, including JC, violated NASD Rule 3010(a) and FINRA Rule 2010;
- ensure that JD qualified as a general securities principal within 90 calendar days of his association with the Firm, and permitted him to function as a principal without having successfully passed the appropriate qualification examination, in violation of NASD Rules 3010(b) and 1021, and FINRA Rule 2010.
- were charged by FINRA,
- settled any charges with FINRA, or
- elected to defend against any charges.