Brokers are in the business of getting good deals for their clients. Sometimes, those deals may involve private companies. Moving forward with these deals can be beneficial for all involved if the broker follows the rules. The Financial Industry Regulatory Authority (FINRA) is a stickler for these rules, and a failure to properly report these types of dealings can lead to serious penalties.
Unfortunately, these types violations are becoming all too common. In a recent case, FINRA sent a clear warning to brokers who fail to disclose dealings with outside businesses and off-the-book fundraising after it suspended a broker out of Ohio for one year. The broker was raising money to invest for his clients but failed to report or get approval from FINRA. As a result, in addition to the suspension noted above, FINRA authorities have also fined the broker $12,500.
A case from earlier this year involved another broker who FINRA suspended for two-months because he ran an outside notary business.
What types of outside business activities do brokers need to report to FINRA?
FINRA rules state that registered brokers cannot be an employee, independent contractor, or otherwise receive compensation from another as a result of business activity outside the scope of their firm unless first providing written notice.
What options are available to brokers in these situations?
Those who face these allegations can choose to settle or fight back. It is important to carefully consider the benefits and risks of each option before moving forward, as the choice could have life-change consequences. In addition to possible suspension and large financial penalties, a proposed settlement could result in additional limitations on your ability to continue work in your chosen profession.