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SEC Fines Dual-Hat CEO/FINOP for Incorrect Net Capital Calculations

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.

https://www.sec.gov/litigation/admin/2018/34-82951.pdf