FINRA sanctioned former Merrill Lynch broker Kyung Soo Kim in June 2019 for engaging in an outside business activity related to digital currency without providing prior written notice to the firm. FINRA previously included cryptocurrency as a priority item in its 2018 Regulatory and Examination Letter,
Kim, whose association with Merrill Lynch in Katy, Texas spanned 2014 through 2018, purportedly launched the crypto-company in late 2017, which coincidentally coincided with digital currency Bitcoin's climb to a peak of nearly $20,000 before its dramatic fall to a present-day value in the $8,000-range.
Merrill Lynch terminated broker Kim in March 2018 for failing to disclose an outside business activity, as well as "conduct involving alteration of a client document." FINRA's fine and suspension, meanwhile, refers only to Kim's undisclosed outside business activity to engage in cryptocurrency mining.
FINRA previously opted for the "undisclosed outside business activities" route to discipline a digital currency-engaged broker in April 2018, when it fined and suspended former Morgan Stanley broker Arthur Robert Meunier-Breitman for soliciting investments in the blockchain product Tezos away from the firm and without disclosing this outside business activity to Morgan Stanley.
Although cryptocurrency's status as as a securities product or not remains malleable—in March 2019, SEC Chair Jay Clayton wrote that cryptocurrencies, digital tokens, and blockchain digital assets may or may not be securities—misconduct such as that of Kim or Meunier-Breitman in engaging in the outside business activity of cryptocurrency sales or digital mining without providing prior written notice to that registered person's firm is a clear violation of FINRA/NASD rules, and is thus subject to regulatory oversight.
The crypto issue can be traced back to a November 2014 letter from the North American Securities Administrators Association (NASAA), in which NASAA identified digital currency and cybersecurity as an emerging threat to securities investors.
If you have invested with a broker such as ex-Merrill Lynch representative Kyung Soo Kim or a financial adviser in an outside business activity the rep failed to disclose to and receive approval to engage in from that person's employing firm, and this illicit outside business or selling away activity conducted outside the umbrella of FINRA and firm oversight has proven harmful to your investments or interests, please call our experienced FINRA arbitration attorneys at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.