FINRA’s Department of Enforcement recently investigated MidAmerica Financial and determined it “failed to create a culture of compliance…” FINRA noted that even after the regulator brought multiple supervisory failures to the attention of the firm and its management, MidAmerica Financial continuously failred to establish and implement adequate supervisory systems over its primary business areas and communications with the public.
Specifically, FINRA alleged MidAmerica Financial failed to establish and maintain a supervisory system reasonably designed to ensure due diligence of private offerings. For example, MidAmerica Financial’s written supervisory procedures (“WSPs”) in effect at the time did not set forth a process for investigating or approving private offerings. In addition to MidAmerica Financial’s supervisory failures with respect to private offerings, FINRA also alleged it review and retention of electronic correspondence, wholesaling activities, private-securities transactions of registered individuals, sales of variable annuities, receipt of gifts and gratuities, and use of social-media sites demonstrated a failure to create a culture of compliance.
As a result of the aforementioned misconduct, FINRA alleged MidAmerica Financial engaged in multiple violations of federal securities laws and industry rules and regulations. MidAmerica Financial violated NASD Conduct Rules 3010 and 3040; FINRA Rules 2010, 2330, 3220, and 4511; Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4; and MSRB Rule G-27. Specifically, under NASD Rule 3010, a brokerage firm owes a duty to all of its clients to monitor and supervise its employees properly. The rule states: “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”
If a FINRA-member fails to supervise its employees or conduct proper due diligence on investment products, then the firm may be liable to the customer for damages or disciplined by FINRA, or both. Here, FINRA censured MidAmerica Financial and fined the Firm $150,000.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment damages investing in private placements or other investments through MidAmerica Financial, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation.