Home Alts News FINRA Fines Wedbush Securities $1.5 Million for SEC Rule Violations

FINRA Fines Wedbush Securities $1.5 Million for SEC Rule Violations

The Financial Industry Regulatory Authority has fined Wedbush Securities Inc. $1.5 million for violating the Securities and Exchange Commission’s customer protection and net capital rules, and for related supervisory and books and records failures.

The Financial Industry Regulatory Authority has fined Wedbush Securities Inc. $1.5 million for violating the Securities and Exchange Commission’s customer protection and net capital rules, and for related supervisory and books and records failures.

To ensure that customers could recover their assets in the event of the broker-dealer’s insolvency, the customer protection rule requires the broker-dealer to obtain and maintain physical possession or control over certain securities.

These securities must be segregated in a “control location,” free of liens or any other encumbrance that could prevent customers from taking their possession. The rule also requires the broker-dealer to maintain a reserve of cash or qualified securities, in a bank account, that is at least equal in value to the net cash the broker-dealer owes its customers.

The SEC net capital rule requires broker-dealers to maintain a minimum amount of net capital to meet their financial obligations to customers.

“Firms have a fundamental responsibility to safeguard the securities of their customers,” said Susan Schroeder, FINRA’s executive vice president, department of enforcement. “The customer protection and net capital rules are important components of investor protection, and member firms must have reasonably designed and maintained systems and supervision to ensure both that they comply with the rules’ requirements and detect and remediate any weaknesses.”

FINRA found that, during a five-month period in 2015 and 2016, Wedbush was net capital deficient, ranging between $10.5 million and $59.4 million. FINRA claims that the deficiencies resulted from Wedbush’s failure to take required deductions when valuing certain certificates of deposit for purposes of computing its net capital.

In addition, from 2011 to 2016, FINRA said that Wedbush failed to accurately calculate its customer reserve requirement on 84 occasions, causing the firm to underfund its customer reserve account 73 times, in amounts ranging from approximately $2 million to $77 million.

Wedbush also allegedly included ineligible assets in its customer reserve account, causing it to underfund its reserve an additional 110 times, in amounts ranging from approximately $9 million to $375 million.

In addition, FINRA alleges that Wedbush held customer assets in locations that were not protected from claims by third parties. The regulators maintain that supervisory system failures exposed customer funds and securities to risk and prevented the firm from detecting the deficiencies for nearly seven years. FINRA claims that supervisory failures caused the firm to maintain inaccurate books and records, and to file 37 inaccurate FOCUS reports.

In settling this matter, Wedbush neither admitted nor denied the charges.

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