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Massachusetts Fines Large BD $1 Million for Sales Contest

 

The Massachusetts Securities Division fined a large broker-dealer $1 Million for compensating financial advisers to encourage clients to open securities-based lending accounts at an affiliated private bank.  The MSD asserts that the firm violated its own policies against sales contests and failed to quickly stop the program after Compliance raised objections.  The MSD cites statistics showing significant growth in securities-based lending associated with the program.  The MSD charges supervisory violations and failure to ensure “commercial honor and just and equitable principles of trade.”

OUR TAKE: The MSD could not assert a suitability violation because the securities-based lending accounts are not securities.  Instead, the regulator employed the “equitable principles” catch-all doctrine, which looks very much like a fiduciary standard.  Even if the DoL rule dies and the SEC refuses to move on a fiduciary standard, watch out for the state regulators.

https://www.sec.state.ma.us/sct/current/sctmorgan/Executed-Consent-Order-Docket-No-E-2016-0055.pdf

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