Over the past several years, we’ve handled many customer cases against investment firm Sanders Morris Harris, Inc. arising from sales activities at its Solon/Beachwood branch office in suburban Cleveland, OH. Last month, FINRA announced sanctions against SMH and two of the registered principals at that office, based upon both their failure to properly supervise a broker who was the subject of many customer complaints and their failure to have qualified personnel supervising options trading. In a Letter of Acceptance, Waiver, and Consent (“AWC”), the sanctioned parties consented to various findings of wrongdoing, including the following.
The AWC indicates that during the period November 2007 through February 2009, Sanders Morris Harris, Inc., acting through its branch manager, failed to reasonably supervise the broker in question. The branch manager failed to adequately implement a heightened supervision plan that had been ordered with respect to that broker. More specifically, the manager had failed to pre-approve a number of low priced equity transactions executed by the broker and failed to document that he had contacted the broker’s customers on a quarterly basis as required by the heightened supervision plan.
Further indicting the entire options trading business at the branch office, the AWC states that during the period July 2006 through February 2009, SMH failed to establish and maintain a reasonable system to supervise options trading at the branch. Specifically, SMH allowed brokers at the branch office to transact options business, even though the principal supervisor of the branch office was not qualified as either a Registered Options Principal or a Limited Principal-General Securities Sales Supervisor.
All of these described acts, practices, and conduct constituted violations of NASD Rules. Sanders Morris Harris Inc. was censured and fined $150,000, and the former branch manager in question was fined and briefly suspended from association with any FINRA member in any principal capacity.