Florida Brokerage Firm Censured, Fined For Failure To Establish And Implement Property Supervisory System

Kovack Securities Inc. (CRD#: 44848/SEC#: 8-50847) is a Fort Lauderdale headquartered brokerage firm that is licensed to operate in 53 U.S. states and territories. On August 23rd, 2022, the Financial Industry Regulatory Authority (FINRA) announced a censure and a significant civil fine against Kovack Securities Inc. for its failure to put a proper supervisory system in place (NO. 2018060177801). As a consequence, unsuitable investment recommendations were made. Here, our Miami unsuitable investment losses attorney discusses the enforcement action taken by FINRA.

Brokerage Firm Sanctions: Kovack Securities Inc. (CRD#: 44848/SEC#: 8-50847) 

According to FINRA, the review period in the disciplinary action was March of 2015 through May of 2017. A review of the brokerage firm’s policy determined that Kovack Securities Inc. failed to establish, maintain, and enforce a proper supervisory system. As a consequence, the firm failed to comply with FINRA Rule 2111—the suitability rule. More specifically, Kovack Securities Inc. did not have an adequate system in place to review and assess certain types of transactions related to mutual funds.

Customers at the firm were put into position holding Class A shares of mutual funds. These are designed to be a long-term investment. As customers of Kovack Securities Inc. did not hold the mutual fund for the proper period of time, they were forced to pay additional (avoidable) fees. Without admitting to or denying any of the specific allegations raised, Kovack Securities Inc. consented to FINRA’s proposed penalties. Sanctions include:

• A censure;
• A $210,000 fine; and
• An agreement to further revise written supervisory policies within the next 90 days. 

Brokerage Firms are Responsible for Supervising Registered Representatives 

Brokerage firms are responsible for overseeing the conduct of their registered representatives. Under FINRA Rule 3110, a broker-dealer that fails to put the proper supervisory system in place can be held legally liable for the resulting damages suffered by its customers. Specifically, FINRA Rule 3110 requires licensed brokerage firms to:

• Develop and establish a proper supervisory system;
• Draft written procedures for the supervisory system;
• Proactively maintain the supervisory system; and
• Effectively follow-up on any issues that might arise.

In this case, FINRA emphasized that Kovack Securities Inc. failed to properly follow up on some significant red flags that indicated unsuitable investment recommendations were made by its registered representatives. FINRA cited this failure to proactively take corrective action as an issue that was considered when penalties were imposed against the brokerage firm.

 Call Our Florida Failure to Supervise Securities Fraud Lawyers Today

At ​Carlson & Associates, P.A., our Florida investment fraud attorneys are laser-focused on personalized guidance and support to investors. If you sustained financial harm because a brokerage firm failed to properly supervise its representatives, we are here to help. Give us a call now or send us a direct message to set up a completely confidential, no obligation case evaluation. From our Miami office location, we handle securities losses claims in South Florida and beyond.

Source:

finra.org/sites/default/files/fda_documents/2018060177801%20Kovack%20Securities%20Inc.%20CRD%2044848%20AWC%20gg.pdf