Crown Capital Securities, a Califonia-based financial services provider has been issued with $75000 penalty by Financial Industry Regulator Authority. The regulatory authority settled with this charge after Crown Capital disbursed almost $19.3 million in transaction-based compensation to unregistered entities.
The fine was a result of rules 2040 and 2010 violations. The cash was transacted to 18 unregistered entities between January 2017 and January 2021. The entities are limited liability firms and corporations established by registered representatives, while their enterprises were approved and operated outside business activities.
According to FINRA, the commission paid by Crown Capital was to be transferred directly to the registered representatives but instead diverted to unregistered entities. From FINRA source, Crown Capital has 164 registered branch offices.
FINRA stated that “Between January 2017 and January 2021, Crown Capital paid approximately $19.3 million in commissions earned by 18 of its registered representatives to 18 unregistered entities. The unregistered entities were corporations and limited liability companies created by the registered representatives to serve as doing business as names for their securities businesses and were disclosed and approved outside business activities. Crown Capital made payments to the unregistered entities instead of paying commissions directly to the registered representatives.”
Crown Capital has approximately 300 registered representatives and it has been in operation as a FINRA member since 1972.
Crown Capital Response
In their response to FINRA, Crown Capital agreed to honor the penalty. Additionally, Crown Capital has also submitted an election of payment form to show the method it intends to pay the fine imposed.
The fine also comprises certification and a censor signed by a principal of the company that all of Crown Capital’s payment arrangements and commissions, including those paid with links to networking agreements, all comply with the FINRA Role 2040.
FINRA has scaled up its tactics to regulate the industry this year. The watchdog recently fined ETrade $350,000 for failing to establish and maintain its supervisory systems.
In addition, the regulatory body also imposed a heavy fine of $2 million on Deutsche Bank Securities for violation of executions. FINRA ruled that the broker broke rule 5310 which stipulates that companies should seek the most favorable terms reasonably available for a customer’s orders.