StockCross Financial Services, Inc.
The firm was deemed to have failed to establish and maintain a supervisory system reasonably designed to supervise securities transactions and achieve compliance with FINRA’s suitability rule. The findings stated that the firm did not conduct any principal review of solicited transactions.
The firm had no surveillance system or exception reports to review solicited transactions and the automated surveillance system, when implemented, was not reasonably designed to detect excessive trading and other violative activity.
The firm also did not provide its supervisors with exception reports identifying excessive trading, suitability, wash transactions, or over-concentrated securities positions and it never implemented an active account report that was referenced in its WSPs. It was not until later that the firm implemented a trading exception report, but it was limited in scope and utility. As a result of the firm’s deficient supervisory system, it failed to reasonably supervise a broker who engaged in unsuitable and excessive equity and options trading and used margin in senior customers’ accounts. One of the customers sustained $543,250 in losses in her accounts and the firm settled with her for $900,000 and the other customer sustained $223,138 in losses in her accounts and the firm settled with the other customer for $350,000.
The findings also stated that the firm permitted a broker to function as its trading supervisor even though he did not obtain his general securities principal registration. As the firm’s trading supervisor, the broker was one of two employees responsible for the daily review of order tickets and trade blotters and was responsible for reviewing the daily transaction activity report.
The findings also included that the firm failed to maintain possession or control over its customer assets consistent with the customer protection rule.
Despite the firm’s significant growth in its stock loan business, it did not update its systems and procedures to adapt to its expanded business line. The firm’s WSPs did not address its responsibilities as a lender in a stock loan transaction and did not address the requirements to remedy possession-or-control deficits within five business days when the firm acts as a securities lender. Consequently, the firm’s stock lending created securities deficits that the firm did not execute a buy-in of overdue securities within the five-day period. The firm also treated joint accounts held by a principal officer of the firm and his spouse as non-customer accounts when performing its customer reserve calculation. As a result, the firm included debits to which it was not entitled, thereby understating the amount the firm was required to maintain. Separately, the firm failed to ensure that it accounted for customer funds in transit from branch offices and not promptly processed to the customer’s account when making its customer reserve calculations, resulting in hindsight deficiencies. As a result of the foregoing, the firm violated Section 15(c) of the Exchange Act and Rule 15c3-3.
FINRA found that due to an error that occurred when the firm switched internet domain providers, it failed to archive outgoing email communications sent to non-firm email addresses. The emails in question were not stored in an easily accessible place. As a result, the firm violated Section 17a of the Exchange Act and Rule 17a-4(b)(4) thereunder. (
