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N Cal Attorney
N Cal Attorney, Attorney
Category: Business Law
Satisfied Customers: 9415
Experience:  Since 1983
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I have a question regarding FINRA, Broker Dealers and outside

Customer Question

I have a question regarding FINRA, Broker Dealer's and outside business activity
Submitted: 7 years ago.
Category: Business Law
Expert:  N Cal Attorney replied 7 years ago.
-Could you explain your situation a little more?

Do you have a specific question?
Customer: replied 7 years ago.
Just curious what the ramifications would be if a securities licensed individual who holds a broker's contract through a BD did not disclose outside business (not securities related) activity to that BD, and the BD found out. I'm sure the BD would terminate the contract, but could they, or FINRA, legally impose any monetary fines of any sort?
Expert:  N Cal Attorney replied 7 years ago.
Did the person file a false or misleading report with FINRA?
Customer: replied 7 years ago.
No. When they signed the broker's contract with BD, they had no outside business activity. The OBA began after the contract was entered into with the BD.
Expert:  N Cal Attorney replied 7 years ago.
Did their contact with the broker-dealer specify that they were not to conduct any outside business activity?
Customer: replied 7 years ago.
The quesiton posed to the individual was "Are you currently engaged in any other business..." Individuals response was no.
Expert:  N Cal Attorney replied 7 years ago.
Did the contract impose a continuing duty to disclose outside business activity or not to engage in any?
Customer: replied 7 years ago.
Just duty to disclose OBA.
Expert:  N Cal Attorney replied 7 years ago.
The BD has no power to impose sanctions other than to fire the person.

I do not believe FINRA has jurisdiction to do anything, since you said he never lied to FINRA.
Customer: replied 7 years ago.

He never lied to FINRA, correct. He just didn't disclose the oba once it began. Could they consider "forgetting" to disclose the oba lying?

Expert:  N Cal Attorney replied 7 years ago.
The FINRA application requests a detailed description of each business activity to be conducted by the applicant. See

I think this was a material nondisclosure and that he can be disciplined by FINRA. Now that I saw the tutorial I am changing my opinion.
Customer: replied 7 years ago.

Is it still considered a material nondisclosure if when all of those forms were completed, he truly had no outside business activity?


Expert:  N Cal Attorney replied 7 years ago.
My answer is Yes.
Associated persons are required, either under Rule 3030 or Rule 3040, to report, in writing, any and all types of business that they plan to conduct away from their firms, whether or not it involves a security. Rule 3040 requires associated persons to obtain written approval from their firms before they sell any security, including securities in the form of promissory notes, and Rule 3030 requires prompt written notice to a member of any outside business activity for which an associated person receives compensation, including the sale of a promissory note that is not a security. Since there has been some confusion among associated persons as to whether particular financial instruments are securities, this Notice advises associated persons to provide written notice to their firms before they engage in the sale of any financial instrument.
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Expert:  N Cal Attorney replied 7 years ago.
Thank you for accepting my answer.