Monday, August 11, 2014

A Lesson in Broker-Dealer Examination Conduct

Everyone knows that examinations by the SEC or FINRA are not fun. Having examiners camped out in your office for days, or weeks at a time is disruptive. But do we all know that you cannot successfully hide problems?

Apparently not, because last week the SEC filed charges against a brokerage firm and its founder for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies.

Taking accounting liberties, like transferring liabilities to an affiliate, or treating an illiquid stock as an allowable asset, is bad enough. However, the SEC alleges that this firm provided SEC examiners with doctored invoices that sought to mask the extent of the firm’s liabilities.

 That resulted in additional charges, and criminal charges against the individual for obstructing the SEC’s examination.

 The better course of action? Obviously make sure that you don’t attempt to avoid discovery of your violations by taking a criminal course of action, but how about this. How about contacting a securities attorney and/or other securities professional, to help you discover, and address, the issue, before the SEC examiners discover it.

 In our years of representing financial firms, we have always found it has been better to identify the problem, identify a solution, and self-report if there is a violation. You will get a better result, and certainly better than criminal charges being filed for obstruction.

 If you think you have a net capital violation, or any rule violation, give me a call. We can assist you in not only identifying the problem, but in creating a solution. 212-509-6544.

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