Isaak Bond Investments has agreed to pay a $20,000 fine to settle allegations brought by the Financial Industry Regulatory Authority, which found that IBI was running a securities business in March 2022 without maintaining its minimum required net capital, a situation linked to trades in municipal securities.
Lakewood, Colo.-based IBI accepted and consented to FINRA's findings without admitting or denying them, a settlement document accepted by FINRA on July 7 shows. In addition to the fine, the firm also consented to a censure.
FINRA found that between at least January 2022 and November 2023, IBI and another entity traded muni securities between them.
"IBI sold the securities to the street and took the gain or loss on each trade," the settlement document said.
However, despite assuming the gains and losses on those positions, IBI didn't treat those securities as being part of its inventory because it believed them to be owned legally by the other entity by contract, according to the document.
"Consequently, IBI failed to take the required haircuts for securities positions held by the firm in its net capital computations, which resulted in inaccurate net capital computations," the settlement document said. "The firm's net capital fell below the required minimum amount in March 2022."
FINRA found that IBI conducted a securities business on various days in March 2022 when it lacked the required minimum net capital. Consequently, the firm violated the Securities Exchange Act of 1934 section 15(c), Exchange Act Rule 15c3-1, and FINRA Rules 4110 and 2010, the settlement document said.
"When IBI failed to take the correct haircuts in its net capital computations, it recorded its inaccurate net capital on its general ledger, making its books and records inaccurate," according to the settlement document, which said that the net capital entries on IBI's Financial and Operational Combined Uniform Single report filings "were inaccurate in all 23 months between January 2022 and November 2023."
The firm failed to file with FINRA and the Securities and Exchange Commission a same-day notification of its net capital deficiency, according to the document, which said that IBI became aware of its March 2022 net capital deficiency on Oct. 22, 2024, but failed to file the required financial notification until Nov. 27, 2024.
As a result of those issues, the firm violated Exchange Act section 17(a), Exchange Act Rules 17a-3, 17a-5, and 17a-11, and FINRA Rules 4511 and 2010, the document said.
In addition, FINRA found that IBI had failed to obtain an independent audit of the firm's anti-money laundering program since November 2017. Consequently, IBI violated FINRA Rules 3310(c) and 2010, the document said.
IBI offered a statement in response to a request from The Bond Buyer.
"Due to dealing with limited resources at a micro sized firm and direct family members of an owner as well as the compliance officer passing away this past year, and being audited by FINRA immediately and continuously after the COVID crisis, compliance tasks had to be prioritized to ensure our clients and the markets remained protected and transparent," the firm said in the statement. "The low risk of laundering money due to the institutional nature of our business and the result of our own internal reviews showing appropriate AML procedures being followed and including the aforementioned unusual circumstances, we did not prioritize the completion of an independent AML audit for some time. We expect to have one done this year and every year going forward."
"Finally, we were informed of a net capital violation over a year after it had occurred due to our interpretation of rules being different than that of FINRA," the firm added. "Had we been following said applicable regulations in the way FINRA was expecting at the time, we would have been able to avoid the net capital violation that occurred in the one instance of a multi-year historical review. Going forward now that we and FINRA are on the same page, we do not expect to have regulatory net capital violations."
