Wednesday, May 30, 2018


Beginning July 9, 2018, FINRA will conduct an individual public records search on every applicant when a broker-dealer files a form U-4 application for registration.  FINRA currently performs this search for all registered persons—but only annually.  This additional records search—
which will satisfy the requirement to perform a search of records for judgments, bankruptcies, and liens only—will provide added benefit to member firms and registered persons, according to FINRA.  In FINRA’s May 18, 2018 Information Notice, FINRA claims this additional search is “likely to: (1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens[1].”

Numbers (1) and (2) seem like probable benefits to both the member firms and the registered persons.  Saying the same for number (3), however, appears to be a stretch.  Regardless, the burden of these public records searches is real, especially to smaller broker-dealers.  FINRA taking over this requirement is a welcome change and one that makes sense given that it is already performing the annual searches.  Firms and agents will still need to respond to and file any items that are found in these searches, but the searches themselves will no longer have to be performed in-house or by a third-party vender for each registered hire. 

Finally, firms and registered persons are still required to report unsatisfied liens and judgments within 30 calendar days of learning of the event as long as the agent is registered and to report other activity, such as certain criminal matters per FINRA Rules.

Cosgrove Law Group, LLC regularly assists registered persons with disclosure matters, regulatory inquiries, registration matters, and other matters related to industry registration compliance.  We also have experience assisting broker-dealers with regulatory inquiries related to their registration filings.

[1] Firms and registered persons are required to report unsatisfied liens and judgments within 30 calendar days of learning of the event. FINRA determines whether a filing is late based on the date the registered person learned of the judgment or lien and, if it is late, will assess the late disclosure fee based on that date. See Information Notice 8/17/12 (Late Disclosure Fee Related to Reporting of Judgment/Lien Events). Occasionally, an individual is unaware of the existence of a judgment or lien. The public records search facilitates the identification and timely reporting of these events

Friday, May 18, 2018

Missouri Securities Division Bars Two Former Owners of Local Broker-Dealer

Steven Larson and Michael Standley owned Oakbridge Financial Services along with Kathy Winter.  All three of them functioned as registered representatives of the broker-dealer as well.  The three were also associated with a state registered investment adviser, Private Label Money Management (PPMM).  Late last year Winter agreed to pay a small fine and submit to heightened supervision due to her alleged administrative failures as president of PPMM.  She was also barred from operating as a supervisor for either a broker-dealer of RIA for two years.  Not long before that, Winter had been suspended by FINRA for selling unregistered promissory notes that went sour. 

This month her two former co-owners were barred for their failure to supervise Robert Boyer, II of the Heroic Life Assurance Company.  Larson was also tagged for over-concentrating some of his clients’ portfolios with reverse convertible securities, also known as “recons.”  Recons are:  “…complex, structured products that contain a put option held by the issuer that triggers if the underlying equity falls below a certain barrier price and stays there at the end of the term.  When the equity price triggers the put option, the investor gets a certain number of shares of the equity at the ‘strike price’.  Whether or not the barrier price is breached, the investor gets income during the term of the Recon at an above market interest rate.  The interest rate is a function of the volatility of the underlying equity.  The higher the volatility and closer the barrier price to current price, the higher the interest rate.  Recons are sold in $1,000 increments.”

All three orders can be reviewed here.

Wednesday, May 9, 2018


If you receive a letter demanding information and documentation from a state securities division, I hope you find this blog before you rifle off a response.  As a former Commissioner of Securities, I am frequently retained by individuals who are the subject of a state securities division investigation.  Unfortunately, and far too often, the individuals hire me after they have sent in a response to the initial demand letter.  Some even wait until after they have been through a recorded interrogation at the division. 

A request for information is not a friendly or harmless inquiry.  How you respond and the documents you provide could damn you, or at least make it very difficult to defend you once you hire us.  Going through an on-the-record exam (“OTR”) is even worse.  You will not be properly prepared, no matter how smart and innocent you perceive yourself to be.  Moreover, the Securities Division will likely not provide the attorney you will eventually need with a transcript of the interrogation.  This will leave you and your counsel at a marked disadvantage throughout the proceedings.  In sum, when you get the letter, pick up the phone and hire an attorney experienced in defending state securities prosecutions.  Food for thought.