The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2011025618702) and sanctioned brokerage firm NFP Advisor Services, LLC (f/k/a NFP Securities, Inc.) (NFP Advisor) concerning allegations that from December 2006 through January 2014, the firm failed to commit the necessary resources to several critical regulatory obligations related to its supervision of the firm’s brokers. FINRA found the following supervisory failures: (1) failure to supervise the private securities transactions of 79 brokers who were dually registered with Registered Investment Advisors (RIAs); (2) failure to preserve securities related emails sent by five of brokers; (3) failure to approve and preserve advertising materials contained on three websites that were maintained by one of its brokers; and (4) failure to timely update the Forms U4 of its brokers on 81 occasions. FINRA imposed a $500,000 fine.
As part of the regulator’s allegations FINRA found that in February 2009, NFP Advisor conducted a non-OSJ branch office examination of the office of one its brokers by the initials “DM.” NFP Advisor learned that DM was recommending "managed accounts" and "alternative investments" through his outside RIA, even though he had never disclosed this business to NFP. FINRA found that in October 2009, DM disclosed that he was managing an investment fund, MIM, LLC, as an outside business activity. FINRA determined that NFP Advisor did not adequately investigate red flags or follow-up on the October 2009 disclosure to ensure that DM was not engaging in private securities transactions.
As a result of NFP Advisor’s failure to investigate DM's outside activities, FINRA found that from February 2009 through DM's termination from the firm in May 2011, NFP failed to identify DM's private securities transactions and failed to supervise DM's. In addition, FINRA concluded that NFP Advisor also failed to supervise the advisory activity of 79 brokers dually registered with NFP Advisor and fourteen RIAs. According to FINRA, these fourteen RIAs had more than $3 billion in assets under management, a portion of which was under the management of the 79 brokers. FINRA found that NFP Advisor failed to record these transactions on its own books and records and that the firm treated the brokers trading activities through the RIAs as outside business activities rather than as private securities transactions
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