FINRA Fines Sagepoint Financial, Inc. For Suitability Issues 

Sagepoint Reportedly Sanctioned for Supervisory Failures involving Unsuitable use of Margin 

According to public disclosures, the Financial Industry Regulatory Authority (FINRA) has reportedly censured and fined Sagepoint Financial $35,000 for supervisory failures on September 9, 2022. From April 2014 through July 2017, Sagepoint allegedly failed to establish, maintain, and enforce a supervisory system in regards to margin use. FINRA reportedly found that Sagepoint purportedly failed to see red flags of unsuitable use of margin in two customer accounts that caused the customers to pay more than $51,800 in commissions, fees, and margin interest.  The firm allegedly violated NASD Rule 3010, FINRA Rules 3110 and FINRA Rule 2010.2, according to FINRA. In additions to the censure and fine, the firm will be required to pay $51,830.24 in restitution, plus interest. 

What is 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. 

The rule gives requirements for a firm to have reasonably designed written supervisory procedures (WSPs) to supervise the activities of its associated persons and the types of businesses in which it engages. 

Among other things, a firm’s WSPs must address supervision of supervisory personnel and provide for the review of a firm’s investment banking and securities business, correspondence and internal communications, and customer complaints. WSPs should describe: 

• the specific individual(s) responsible for each review, 
• the supervisory activities such persons will perform, 
• the frequency of the review, and 
• the manner of documentation.  

Unsuitable use of Margin  

Many securities fraud complaints arise from problems which occur when a portfolio is on margin, i.e. trading with money borrowed from the brokerage firm. A customer may complain that the broker put the account on margin without his prior authorization. Often, the problem is not that the account was put on margin without any prior authorization, but rather that the broker put the account on margin without explaining the risks and problems associated with margin trading.  

Since a margin account involves trading with borrowed funds, there are special risks associated with margin that must be explained to a customer at the outset. When a customer receives “margin calls” which he does not understand or is shocked to discover that positions in his account are being liquidated due to margin maintenance requirements, it may reflect the fact that he never understood margin properly from the outset, and therefore he did not knowingly consent to the use of margin in his account. 

Potential Lawsuits to Recover Investment Losses 

Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees. 

The brokerage firms can be held responsible for any losses in a FINRA arbitration claim if it is determined that they failed to properly supervise their agent. 

If you are concerned about your investments with Sagepoint Financial, the securities attorneys at The White Law Group may be able to help you. For a free consultation with an attorney, please call (888) 637-5510. 

To learn more about the firm’s lawsuit against Sagepoint please see: FINRA Lawsuit filed against Sagepoint Financial, Inc. 

The foregoing information, which is all publicly available, is being provided by The White Law Group. 

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. For more information, please visit our website, www.whitesecuritieslaw.com.