Broker Dealer Fined for Net Capital Violations

A firm settled FINRA charges for failing to maintain the minimum required net capital and related supervisory violations.

According to the AWC, the firm overstated its net capital by improperly classifying unearned investment advisory fees as allowable assets and using the cash-basis accounting method instead of the required accrual method. FINRA said these practices led to net capital deficiencies on at least 10 business days between January 2022 and March 2023, with deficiencies ranging from $1,593.61 to $40,274.44. FINRA stated that the firm continued to conduct a securities business during these periods, despite failing to meet the minimum net capital requirements.

FINRA also found that the firm filed untimely net capital deficiency notices, prepared and maintained inaccurate net capital computations and submitted an inaccurate FOCUS report. More specifically, FINRA found that the firm failed to compute its net capital monthly, limiting computations to months when FOCUS reports were due. 

As a result, FINRA determined that the firm violated SEA Section 15(c) ("Government securities brokers and dealers") and Rule 15c3-1 ("Net capital requirements for brokers or dealers"); SEA Section 17(a) ("Records and Reports"); and FINRA Rules 4110 ("Capital Compliance"), 4511 ("General Requirements"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $25,000 fine and (iii) undertake remedial actions to implement an improved supervisory system, including written supervisory procedures.