If you ever wonder whether all the rules and policies really matter, they DO! Let's look at some recent FINRA enforcement cases:
· Advisory to Brokerage Conversion: An individual was fined $20,000 and suspended for six months for omitting material facts when converting fee-based advisory accounts into commission-based brokerage accounts and executed trades in the brokerage accounts. 11 of the rep’s customers informed him they wanted to liquidate their fee-based advisory accounts. The rep incorrectly believed his firm’s policies prohibited him from executing unsolicited sales in advisory accounts. The rep did not tell his customers that he was converting their accounts from advisory to brokerage to affect the transactions they requested, nor did he discuss with them the differences between these account types, including that transactions in brokerage accounts, unlike those in advisory accounts, would result in commission charges. The sales in the brokerage accounts were done with discretion (unauthorized) and generated $30,201.52 in commissions.
· Outside Business Activity: An individual was fined $5,000 and suspended for 45 days for serving as a member of a board of directors and treasurer for an outside business without providing prior written notice to his member firm. The individual also falsely attested in at least one compliance questionnaire that he was not involved with any undisclosed OBAs.
· Failure to Supervise: An individual was fined $15,000 and suspended for 18 months for failing to reasonably investigate and address multiple red flags indicating firm representatives were engaged in potentially excessive trading and churning.
· Reg BI Violation: An individual was fined $10,000, suspended for three months, and ordered to pay $5,607, plus interest, in partial restitution to a customer. The individual recommended five retail customers, including four senior customers, invest in speculative, unrated corporate bonds that were not in their best interests based on their investment profiles. The rep mistakenly believed that the bonds were backed by life insurance policies rather than the much risker alternative assets obtained through the company’s reoriented business model. The high risk of loss associated with speculative investments in the bonds was not consistent with these customers’ investment objectives and risk tolerances.
Please contact the Prosperity Network Compliance Team with any questions. compliance@prosperityadvisors.com or 913-529-5500 Option 2.
Internal Use Only
Attachment: FINRA Monthly Disciplinary Actions June 2026