Written by The White Law Group• March 15, 2023• 2:20 pm• Blog, Current Investigations

Webull Financial Censured and Fined $3 Million

FINRA Sanctions Webull Financial for Options Trading

According to public documents this week, the Financial Industry Regulatory Authority (FINRA), the self-regulator that oversees brokers and brokerage firms, has reportedly censured and fined Webull Financial LLC (CRD #289063)$3,000,000 for supervisory issues regarding options trading. The firm, headquartered in New York, NY, began offering trading to customers in May 2018.

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From December 2019 — when the firm first offered options trading — through July 2021, Webull Financial allegedly failed to exercise reasonable due diligence before approving customers to trade options. During this period, the firm purportedly employed an automated, electronic system to approve or disapprove customer accounts for options trading. According to FINRA, Webull’s system and the firm’s supervision of the system allegedly resulted in customers being approved for options trading authority who did not satisfy the firm’s eligibility criteria. Further, some accounts contained red flags that options trading was potentially inappropriate for them. As a result, the firm reportedly violated FINRA Rules 3110, 2360, and 2010.

Options Trading

Options trading is complex and risky and typically is only appropriate for seasoned professionals or very sophisticated investors.

FINRA Rule 2360(b)(16) requires that, in approving accounts for options trading, firms exercise due diligence to ascertain “the essential facts relative to the customer,” including the customer’s age, income, net worth, investment objectives, and investment experience and knowledge.

The Rule further requires that a principal at the firm—either a Registered Options Principal or a General Securities Sales Supervisor “specifically approve or disapprove in writing the customer’s account for options trading.” Further, in determining whether and to what extent to approve an account for options trading, a firm shall consider the information provided by the customer along with the other information available to the firm.

From May 2018 through December 2021, Webull Financial’s supervisory system, including written supervisory procedures (WSPs), was allegedly not reasonably designed to identify and respond to customer complaints, according to FINRA. As a result, the firm allegedly violated FINRA Rules 3110(a).

During this period, the firm also allegedly failed to report certain written customer complaints to FINRA, as required, in violation of FINRA Rules 4530 and 2010. Finally, from December 2019 through March 2021, the firm did not maintain and keep current an options complaint log in violation of FINRA Rules 2360(b)(17) and 2010.

In addition to the censure and fine, the firm will be required to remediate the issues described above.

FINRA Rule 3110 Failure to Supervise

FINRA Rule 3110 (Failure to Supervise) requires a firm to establish and maintain a system to supervise the activities of its associated persons that is reasonably designed to achieve compliance with securities laws and regulations and FINRA rules.

In addition to the censure and fine, the firm will be required to certify that the firm has remediated the issues within sixty days of the notice.

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The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. The firm represents investors throughout the country in claims against their brokerage firm.