“The real issue will be for firms who are on the hook for supervision. Broker-dealers have an obligation to detect their brokers’ undisclosed activities and businesses,” said Adam Gana, managing partner of Gana Weinstein, LLP.
“Firms have a clear duty to search for and ferret out red flags. In my humble opinion, firms do not do nearly enough to do this and they’re constantly being put on the hook for it. Most of our cases involve failure to supervise both disclosed an undisclosed broker activities. It’s imperative that Finra take a strong stand on brokers’ outside businesses,” Gana added.
Brokers have until Feb. 3 to provide the information Finra requested.
Andrew Stoltmann, a partner with Stoltmann Law Offices, said, “This is one of the rare instances where I think Finra is on a little bit of a fishing expedition. While the optics of financial advisors and brokerage firms getting PPP money is repugnant to many of us, the purpose of those funds is to keep people employed. Therefore, brokers, or RIAS and brokerage firms, should be allowed to have these funds. I think Finra primarily is doing a technical, by the books review,” Stoltmann added.
Finra stipulated last year that Covid-relief loans did not have to be disclosed on U-4 forms as a significant financial event because of their forgiveness, but the Securities and Exchange Commission has required that loans be disclosed in filings “if the circumstances leading you to seek a PPP loan or other type of financial assistance constitute material facts relating to your advisory relationship with clients.”