Moloney Securities Co. in Missouri Agrees to FINRA Sanctions to Resolve Allegations of Failing to Supervise Registered Representatives in Dealings with High-Risk ProductsWednesday, May 13, 2020
Moloney Securities Co., Inc. (Moloney), a brokerage firm headquartered in Manchester, Missouri, recently submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) Department of Enforcement to resolve allegations that it failed to establish and maintain supervisory systems and procedures reasonably designed to comply with certain securities rules concerning suitability. Moloney has approximately 150 registered representatives in approximately 50 branch locations.
According to the AWC accepted by FINRA on May 4, 2020, Moloney’s supervisory system was not reasonably designed to: 1) achieve compliance with its suitability and concentration obligations when recommending high-risk products; and 2) achieve regulatory compliance for the detection and prevention of manipulative trading. Specifically, the supervisory system failed to detect representatives that were “marking the close,” a practice of buying a security just before the market closes at a price significantly higher than its current price. Moloney’s written procedures stated that each regional manager, who oversaw the activities of approximately 50 registered representatives, were responsible for conducting a daily review of all trades made by the representatives assigned to them. Further, the firm did not train its regional managers on how to properly review the suitability of recommendations in high-risk products, nor did the firm distribute instructional materials addressing these issues.
As a result, Moloney failed to detect FINRA violations made by its registered representatives. For example, one registered representative concentrated five senior customers’ accounts by recommending the purchase of risky limited partnerships and exchange traded funds in the oil and gas sectors. These customers had investment goals including “balanced growth” and “preservation of principle/income,” which made these recommendations unsuitable. One customer invested 64% of her net worth in oil and gas limited partnerships based on this representative’s recommendation. The customer ultimately suffered $15,574.13 in losses when the representative transferred the assets in her Moloney account to another FINRA member firm.
Based on the foregoing, Moloney Securities violated NASD Rule 3010 and FINRA Rules 3110 and 2010. The firm agreed to a censure, $100,000 fine, and $15,574.13 in restitution, plus interest.
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