FINRA penalties against ex-broker not excessive, SEC finds

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WASHINGTON - A Financial Industry Regulatory Authority decision to fine a former broker and chief compliance officer $40,000 and suspend him for 30 days for violations of municipal securities and other rules was not excessive or oppressive and will stand, the Securities and Exchange Commission decided this week.

The SEC handed down its decision on Oct. 29, determining that FINRA’s penalty against former broker Thaddeus North should stand following North’s appeals.

The decision concludes a five-year enforcement case against the ex-broker, who is no longer registered with FINRA.

The saga began in July 2013, when FINRA charged North with supervisory failures in his role as chief compliance officer at Connecticut-based Southridge Investment Group, as well as with the failure to report to FINRA that a Southridge broker had business dealings with an individual disqualified from the industry.

The crux of the matter was what FINRA found to be a business relationship between Southridge’s Leslie King, a representative in the firm’s Plano, Tex. office, and a company called Ultimate Tier Advisors (UTA). FINRA found that King was operating a properly-disclosed outside business with her husband called King Asset Management (KAM), and that KAM had hired UTA as a consultant.

UTA was owned by Todd Cowle, whom FINRA found had previously worked wiith King at another firm and who was disqualified from the industry as a result of FINRA’s finding that he had willfully failed to disclose federal tax liens on his registration form.

Cowle had previously applied for a job at Southridge, FINRA found, but hadn’t been hired because of his disqualification. FINRA determined that North knew about Cowle’s disqualification and about the business relationship between Cowle’s and King’s companies, but didn’t report that relationship to FINRA as required by its rules.

FINRA determined that the conduct violated, among other non-muni rules, Municipal Securities Rulemaking Board Rules G-27 on supervision and G-17 on fair dealing. G-27 requires firms to have written supervisory procedures in place designed to promote compliance with all applicable laws and rules. G-17 requires all persons subject to MSRB rules to deal fairly and honestly.

FINRA fined North $40,000 and imposed a two-month suspension in all principal and supervisory capacities and a 30-day suspension in all principal and supervisory capacities to run consecutively.

North then appealed to FINRA’s National Adjudicatory Council, which ruled in March 2017 to uphold FINRA’s findings except to overturn the finding of a G-17 violation. North then appealed to the SEC, which oversees FINRA.

But the SEC was unmoved by North’s various arguments, including alleged bias on the part of a FINRA hearing officer and accusations of fabricated evidence.

“It is the evidence of North’s actions and failures to act that is the basis for his liability,” the SEC said. “North’s failure to fulfill his own responsibilities was egregious. Here, North ignored red flags and repeatedly failed to perform compliance functions for which he was directly responsible. Under these facts and circumstances, FINRA’s disciplinary action was clearly appropriate.”

Neither North nor his attorney could be reached for comment.

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Securities law Enforcement actions MSRB rules Munis SEC FINRA MSRB Washington DC