Broker-Dealer Settles FINRA Charges Over Inaccurate Cost-Basis Reporting

A broker-dealer agreed to a censure and a $950,000 fine to settle FINRA charges that it sent customers inaccurate cost-basis information in account statements, trade confirmations, and tax forms over roughly eleven years.

According to the AWC, from roughly 2012 to 2023 three systems-driven errors caused the firm to misreport cost basis: (i) "rollback reruns" caused a third-party vendor to reprocess multi-lot positions as though later cost-basis data had always existed, overwriting customers' actual lot-selection history in about 6,000 transactions and creating tax overpayment or underpayment risk; (ii) the firm sometimes assigned the same transaction identification number to multiple converted share-class positions, preventing the vendor from distinguishing lots, affecting about 200 accounts and roughly 8,500 statements, plus a separate automated-conversion issue affecting about 3,000 more accounts; and (iii) "position breaks" arose because the firm's stock record and the vendor's system rounded share quantities differently, affecting about 150,000 positions in 100,000 accounts and up to 5.7 million account statements.

FINRA found these communications false or misleading in violation of Rule 2210(d)(1)(B), and that the inaccurate records also violated the recordkeeping requirements of Rule 4511, with both also violating Rule 2010's standards of commercial honor.

FINRA also found that the firm failed to establish a reasonably designed supervisory system, in violation of Rule 3110(a), despite receiving at least 25 written customer complaints - including 18 about position breaks and seven about rollback reruns - and despite internal awareness of both issues before it launched a comprehensive investigation in 2023.

The firm self-reported under Rule 4530(b) and consented to a censure and a $950,000 fine, without admitting or denying the findings. FINRA cited mitigating steps including enhanced controls, additional personnel and management oversight, an internal review, proactive disclosure of the rollback-rerun issue to FINRA staff, retention of an outside consultant, and about $1.9 million in voluntary remediation paid to affected customers.