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Finra Announces Sanctions Against Five Industry Giants for Failure to Supervise

Levin Law | 2.20.2020

Citigroup, J.P. Morgan, LPL Financial, Morgan Stanley and Merrill Lynch All Fined in FINRA Crackdown

In a News Release issued on December 26, 2019, the Financial Industry Regulatory Authority (FINRA) announced sanctions against Citigroup Global Markets Inc.; J.P. Morgan Securities LLC; LPL Financial LLC; Morgan Stanley Smith Barney LLC; and Merrill Lynch, Pierce, Fenner & Smith Incorporated for failure to supervise.  According to FINRA, the five firms “did not know essential facts about customers with custodial accounts established pursuant to the Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA).”

In total, the five firms paid a fine of $1.4 million for violating FINRA Rule 2090.  FINRA Rule 2090, also known as the “Know Your Customer” rule requires that FINRA members use reasonable diligence in knowing and retaining the essential facts of customer accounts and the authority of each person acting on behalf of a customer.

UTMA and UGMA accounts allow for a person to transfer property to a minor beneficiary without the formalities of a trust.  According to FINRA, the five firms allowed customers to open UTMA and UGMA accounts which would enable a custodian to make investment decisions on behalf of a minor until the age of majority, but “failed to establish, maintain, and enforce reasonable supervisory systems and procedures to track or monitor whether custodians transferred control over custodial property to UTMA and UGMA account beneficiaries.”

The five firms’ failure to supervise accounts resulted in custodians making investment transactions after beneficiaries reached the age of majority and should have had the property transferred to their possession.

While none of the firms admitted or denied the charges, all firms consented to the fine and “agreed to review their policies, systems, and procedures to ensure they are reasonably designed to supervise custodial accounts and to achieve compliance with FINRA Rule 2090.”

Financial fraud attorney Brian Levin has dedicated his practice to recovering money for investor victims who have suffered financial losses due to broker misconduct and broker-dealers’ failure to supervise.  If you have sustained financial losses because of a brokerage firm’s failure to supervise, you may be able to recover damages through a FINRA arbitration.  Contact Levin Law today at (305) 402-9050 or for a free, no-obligation case consultation.

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