The SEC censured and fined a broker-dealer and its dual-hatted CEO/FINOP for failing to properly calculate and report its required net capital. The firm executed transactions with foreign banks which would have required a $250,000 minimum net capital rather than the reported $5000 minimum net capital. The firm also failed to properly accrue for legal liabilities. The CEO, a certified public accountant, also served as the firm’s financial and operations principal. As part of the settlement, the firm agreed to hire a FINOP acceptable to the Commission.
OUR TAKE: Firms should not “dual-hat” C-suite executives to serve in regulatory roles such as FINOP or Chief Compliance Officer. The dual-hat model exposes senior executives to significant regulatory risk and shortchanges the required functions. If you can’t afford a full-time person, engage a third party firm that offers these services.