If you ever wonder whether all the rules and policies really matter, they DO! Let's look at some recent FINRA enforcement cases:
- Unsuitable trading in Class A mutual fund shares: An individual was barred for engaging in a pattern of unsuitable trading in Class A mutual fund shares. He sold shares that had been held a year of less and engaged in mutual fund switching between mutual fund families. He had no reasonable basis for believing the short-term trading and mutual fund switching were suitable for any customer. The overall result of the trading activity was that customers paid more than they should have for their investments, and the advisor received more in compensation than he should have.
- Rep was a Trustee without disclosing as an OBA: An individual was fined $5,000 and suspended for four months for engaging in OBAs without prior written disclosure to his firm. He served as a successor trustee for a customer’s trust and after the customer passed away he assumed the role of trustee. The role as trustee was not disclosed to his employing firm. After the firm discovered the rep was a trustee during an internal audit, he was instructed to relinquish his trustee role, but failed to do so. He also inaccurately stated in an annual questionnaire to the firm that he had disclosed all outside activities and was not acting in a fiduciary capacity.
- Options Trading: An individual was fined $20,000 and suspended for nine months for willfully violating Reg BI by recommending that two retail customers, a married couple, engage in options trading that was not in their best interest or suitable for them. He also exercised discretion without prior written authorization when effecting trades in the same customers’ accounts as well as mismarked solicited trades as unsolicited.
- Failing to disclose spouse’s brokerage account: An individual was fined $2,500 and suspended for two months for holding a beneficial interest in two brokerage accounts in his wife’s name maintained at other member firms, without obtaining prior written consent from his member firm.
- Failing to disclose OBA of referral fees: An individual was fined $7,500 and suspended for six months for engaging in an OBA without pre-approval from his firm. He referred four firm customers who sought loans to a third-party lending company owned by his broker-in-law. In exchange for these customer referrals, the rep received approximately $60,000 in compensation from the third-party lending company. The rep never notified or sought approval from his firm to engage in this activity.
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 January 2026