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Blog Archive

Sunday, September 16, 2018

Compliance: Suitability, Excessive Commissions, Unregistered funds

By Cory Roberson, Principal at FIN Compliance and FIN Lancer

Case #1 – Excessive Trading, Suitability, and Client Transactions

September 10, 2018 - The Securities and Exchange Commission (“SEC”) charged two registered representatives (“brokers”) for recommending excessive trades to its retail customers. The SEC claimed that the activity generated large commissions for the brokers and ultimately lost money for many of their clients.  

The claims are staggering --- customers who were mostly into retirement age, lost approximately $3.6 million due to the excessive trades while the brokers netted about $4.6 million in commissions.  

Tips for Compliance: 

Advisors/Broker-Dealers should gather any/all of the following for its suitability analysis:

Financial status - what is the client’s debt/income ratio?
Existing assets – house, stocks, bonds, income producing vehicles
Tax status - future/current tax obligations

*Visit RIA Review (Premium/Premium Plus): Guidelines: Client Onboarding: Client Notes/Suitability - for a complete summary of suitability materials*

Ref. SEC (advisors act) *, FINRA Rule 2111, SEC (company act).

Case #2 – Unregistered Fund Activity & Misleading Advertising Claims

September 11, 2018The Securities and Exchange Commission (“SEC”) charged a digital assets hedge fund manager (“Crypto Fund”) with a violation to its investment company registration statutes.

The SEC claimed that the crypto fund operated as an unregistered investment company while marketing itself as the “first regulated crypto asset fund in the United States.” 

According to the SEC, the fund and its manager claimed it filed for registration with the SEC when no such activities were made.  As a result of the fund’s non-exempt public offerings, the manager was deemed to be operating as an unregistered investment company. 
The manager, without admitting or denying claims, agreed to pay a penalty in the amount of $200,000.   
Tips for Compliance

Contact a securities attorney and/or compliance person for filing steps.
Register the investment business within the appropriate jurisdictions.
Create a compliance program for monitoring procedures and procedures.

Ref. SEC Rule 206(4)-1 (advisors act) *, SEC Rule 482 (company act), Investment Company Act (Registration), Investment Advisors Act (registration).

Case #3 – Suitability, Fraud, Fees and Commissions

September 14, 2018.  The Securities and Exchange Commission (“SEC”) charged a Midwest investment advisory firm and its sole owner (“firm”) with selling $13 million in high-risk securities to more than 120 advisory clients – many of whom were new to such stock recommendations – without prior disclosure that the firm would receive commissions of up to 18 percent from the transactions. 
Allegedly, during a 4-year period, the firm sold shares in a private company that has a prior disciplinary history with the SEC.  Notably, the firm received commissions of cash and warrants from the stock sales that were worth more than $2.5 million (at time of charges)
As a tipping point in the fraudulent activities, the SEC alleges that the defendants also created false invoices and other deceptive tactics to conceal the securities transactions. 
In light of these findings, the firm is accused of violating antifraud and broker-dealer registration provisions associated with federal securities laws.  
Tips for Compliance

Perform a suitability review for client transactions.
Disclose agency cross transactions (when/if applicable).
Test fees or commissions for inaccuracies and/or violations.
Research company history prior to recommending specific stocks to clients.
Disclose any conflicts of interests for transactions (e.g. charging clients an advisory fee and a commission).
Ref. SEC (advisors act); FINRA Rule 2111 (broker-dealers).

Featured Product:  Compliance Management and Review system

Our solution, RIA Review is a documentation-based solution to help boutique investment advisors to maintain an internal compliance program.

There are three versions available including:  Free Version - for those who want to try out a limited version; Premium Version - for state-registrants with basic reporting needs, and Premium Plus Version - for SEC and State Registrants that also require an annual review.

Compliance and Business Management

FIN Compliance ( is a consortium of compliance services including: RIA Consults-Roberson Consults Group, a compliance consulting firm, RIA Review, a compliance-management software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management software tool, and FINLancer is a business management portal featuring:  E-signature tools; Invoicing integration, Vendor Directory, continuity directory*, business client document portal, and more (available by Q3 2019).  Access all services on one site:


FIN Missions ( provides business support group sessions for other entrepreneurs.  In addition, Cory has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.

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