FFEC Wealth Partners Allegedly Failed to Supervise Margin use

FINRA Sanctions FFEC Wealth Partners for Supervisory Failures 

According to the Financial Industry Regulatory Authority (FINRA), the regulator has reportedly censured and fined FFEC Wealth Partners LLC (formerly, First Financial Equity Corporation) (CRD No. 16507) for supervisory failures. 

According to a Letter of Acceptance Waiver and Consent signed on November 25, 2022, FFEC allegedly failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 in connection with margin use. During the period June 2017 through September 2019, FFEC purportedly failed to reasonably supervise the use of margin in two customer accounts and allegedly failed to supervise mutual fund switches in two customer accounts. These alleged failures, which violated FINRA Rules 3110 and 2010, caused the customers to pay more than $112,000 in commissions, fees, and margin interest.  

Buying on Margin 

Buying on margin is when a broker-dealer lends an investor cash through a margin account, using the account as collateral, to purchase securities. Margin increases an investor’s purchasing power, but also exposes investors to certain risks involved in trading securities on margin, including the potential to lose more money than they invested. Buying on margin can be costly since there is interest charged on the amount borrowed until it is repaid. When investors buy securities on margin, they must repay the amount borrowed plus interest, even if they lose money on the investments they purchased on margin. The margin balance is the amount of money a customer trading on margin owes to the broker-dealer. 

According to FINRA, FFEC reportedly faiIed to establish and maintain a reasonable supervisory system and failed to establish, maintain, and enforce WSPs reasonably designed to supervise unsuitable trading on margin. 

FINRA Rule 3310 requires brokerages “to establish and maintain a supervisory system that is reasonably designed to achieve compliance with applicable securities laws and regulations.” to learn more please see: What is Failure to Supervise? FINRA RULE 3110 (SUPERVISION) 

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