On Feb. 5, FINRA fined Wedbush $1.5mn for client asset violations.
- To punish violations of Customer Protection and Net Capital Rules, and related supervisory
and books and records failures over period of 2009-2016, several consumers defrauded.
Customer Protection, Net Capital Rule
- Broker-dealer obligated to protect customer assets as custodian for investments must
be segregated in a 'control location," free of liens, encumbrances, reserve of cash need. - Must maintain minimum amount of net capital, computed based on specified formulas.
Allegations
- 2011 to 2016, Wedbush failed to accurately calculate customer reserve requirement
on 84 occasions, underfundedcustomer reserve account 73 times by $2 million to $77mn. - 5-month period in 2015-2016, net capital deficient, ranging between $10.5mn and $59.4mn.
- Due to failure to take required deductions when valuing certain CDs as formulas would have.
- Included ineligible assets in customer reserve account, underfund 110 times, $9mn to $375mn.
Compliance, Supervisory Failures
- Failed to establish, maintain supervisory systems, procedures reasonably designed to ensure
compliance with two rules exposed customer funds, securities to risk undetected for 7 years.
Settlement
- Neither admit nor deny but consented to the charges, paid $1.5 million fine for behaviour.
