Wedbush abandoned its appeal of a $1 million FINRA fine for reporting violations – a penalty made more severe because of the firm's "extensive disciplinary history," according to the regulator.

The Los Angeles-based firm, founded by Edward Wedbush, has been hit with more than $1.6 million in FINRA fines over the past year, according to the regulator. FINRA said the $1 million fine that Wedbush tried to appeal was warranted because the firm committed "egregious" and "willful" violations, including a failure to report more than 5.6 million transactions on its blue sheet transmissions.

SUPERVISORY 'VACUUM'

Over the course of 21 months from 2012 to 2013, 816 blue sheet responses—some 16% of the firm's total blue sheet submissions—were not complete and accurate, according to the regulator's report. FINRA said the millions of unreported transactions hampered at least one of its investigations into suspicious trading.

With the company shuffling between chief compliance officers Eric Segall and Vincent Moy, supervisory procedures took a backseat, according to the regulator. "It is troubling that the person in charge of blue sheets takes no responsibility," FINRA said when reviewing the case. The regulator added that Segall and Moy "shift blame elsewhere" and "contradicted each other in their testimony about lines of reporting."

Wedbush did not respond to requests for comment.

To add insult to injury, the firm eventually discovered its own mistakes when a backup employee filling in for the usual worker noticed the error—while conducting a simple spot check, according to FINRA. "Essentially there was a vacuum where there should have been focused attention and active management."

MORE HOT WATER

Even while the appeal was still active, the firm faced other fines and sanctions for rule violations in 2016. In march FINRA and Nasdaq issued a joint censure and $675,000 fine to Wedbush for "chronic" supervisory violations with regard to its handling of a client's redemption activity and trading of leveraged ETFs.

And a recent FINRA complaint alleges that Wedbush placed approximately 100,000 shares worth $7 million at risk by creating or increasing deficits in the number of securities required to be in the firm's possession, according to the regulator. The company is also accused of underfunding its customer reserve bank account.

FINRA says that Wedbush "failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with both the possession and control requirement and the customer reserve requirements of the Customer Protection Rule."

Samuel Steinberger

Samuel Steinberger

Samuel Steinberger is an editorial intern with SourceMedia's Investment Adviser Group.