FINRA filed a complaint against First Financial Equity Corporation of Scottsdale, AZ and Chief Compliance Officer Melissa Ann Strouse of the firm's Arizona and San Diego, California branches, accusing the firm of numerous supervisory deficiencies, including a lack of procedures for its ETF business and failure to supervise a registered representative who was charging commissions that the firm's risk manager deemed problematic and excessive, even after agreeing to cap the commissions rate.
In its investigation, FINRA identified several business areas in which First Financial failed to establish, implement and/or maintain adequate supervisory procedures, including fee-based account suitability, broker/representative activity in customer accounts (e.g., monitoring for potential churning and excessive trading, as well as discretionary accounts) and improper supervision and registration in options accounts.
FINRA also alleged that First Financial and Strouse maintained inaccurate and inadequate written supervisory procedures (WSPs), such that WSPs failed to reflect the firm's actual processes and procedures. Investigators found the procedures that were in place were inadequate because they did not specify how the firm would conduct surveillance reviews nor did they adequately address issues of suitability and how representatives would form a reasonable basis for recommending securities or strategies.
In regards to exchange-traded funds (ETFs), investigators said that First Financial "did not have any written procedures for the supervision, approval and sale of ETFs," which also included complex ETFs (leveraged and inverse ETFs).
Finally, FINRA referenced the case of Scottsdale broker "JW," whose commissions charged to two customers in discretionary accounts was deemed "problematic and excessive" by the firm's risk manager, who presented his findings to the firm president and CCO Strouse. Although the President, Strouse, and JW subsequently agreed that JW would charge no more than $35 in commissions from that point on, the findings indicate that JW failed to adhere to this agreement and in fact charged between $75 and, eventually, $1,211.65 in commissions for one particular transaction.
Instead of generating $5,900 in commissions over the next few months, pursuant to the $35 agreement, broker JW purportedly earned $68,000 in commissions—or $62,100 in 'excess commissions' —following the meeting and agreement to cap commissions at $35 per transaction.
As such, FINRA determined that the firm violated several NASD/FINRA rules in taking no action to address JW's excessive commissions, even though the firm was aware or should have been aware of the commission charges in excess of the $35 agreement.
If you have invested with First Financial Equity Corporation in Scottsdale, Arizona or San Diego, California, or with any firm whose supervisory failures, from a lack of WSPs to inaction or ignorance of a broker or financial adviser's excessive commissions, discretionary abuse, account churning or unsuitable recommendations have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.