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Florida BD and CEO Agree to Pay Half-Million to FINRA for Text Messaging Allegations

Dawson James Securities Inc. and its chief executive officer have agreed to pay the Financial Industry Regulatory Authority a combined $510,000 to end allegations that the firm failed to review thousands of business-related text messages and had an inadequate supervisory system.

Dawson James and Robert Dawson Keyser Jr. agreed to pay $500,000 and $10,000, respectively, to settle FINRA’s claims without admitting or denying FINRA’s findings. The firm, based in Boca Raton, Fla., also agreed to continue working with a third-party consultant it has already hired to review its supervisory system and internal controls, according to the letter of acceptance, waiver and consent.

FINRA alleged that from August 2011 through January 2021, Dawson James failed to preserve and review 10,900 business-related texts that were sent or received by at least 27 people associated with the firm, including Keyser.

During that same period, the firm’s supervisory procedures weren’t reasonably designed to meet its compliance obligations to retain and review the messages, and the firm violated Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, NASD Rules 3010 and 3110(a), and FINRA Rules 3110, 4511, and 2010.

Using his firm-issued mobile phone, Keyser sent or received about 4,400 text messages related to the firm’s securities business without retaining them, from August 2011 to December 2018 – a period during which the firm prohibited its associates from communicating about securities business via text message, according to the letter. Nonetheless, Dawson James failed to take reasonable steps to enforce its prohibition against using text messaging for business-related communications, and the firm failed to take steps to capture, retain, and review its associated persons’ business-related text messages.

And FINRA alleged that between December 2016 and March 2019, the firm didn’t establish and maintain a supervisory system reasonably designed to comply with its due diligence requirements for private placement offerings. First, the firm’s procedures did not address how its investment banking principal should review the reasonableness of the due diligence conducted by the firm’s investment bankers. Second, the firm’s procedures did not address conflicts of interest raised when the firm’s investment bankers conducted due diligence on offerings by issuers with whom they were affiliated. Third, while Dawson James’ procedures required the firm’s investment bankers to document their due diligence reviews, they did not address how the investment banking principal should review or enforce this requirement. Finally, Dawson James failed to require its investment bankers to conduct due diligence reviews for every offering, including follow-on offerings.

This AWC letter was submitted on the condition that, if accepted, FINRA will not bring any future actions against Dawson James and Keyser.

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