MML Investors Services settled for $250,000 allegations by Finra that the firm delayed reporting 39 customer complaints, criminal charges and regulatory events listed on registered representatives’ U4 and U5 forms, according to documents filed by the regulator.
The allegations stemmed from a Finra investigation into the timeliness of the Springfield, Mass.-based firm’s disclosures regarding a former employee’s behavior, according to a letter of acceptance, waiver and consent (AWC) filed this week by Finra in which MML Investors consented to the regulator's findings without admitting to or denying the allegations.
From December 2018 through February 2021, MML failed to update its associated persons’ Forms U4 and U5 to report 39 customer complaints and arbitrations, criminal charges, bankruptcies, internal reviews and investigations, regulatory actions and other disclosable events in a timely manner, according to Finra. In addition, the system MML had in place for such reporting was considered inadequate, the regulator said.
The AWC noted that MML was censured and fined $300,000 for similar violations in November 2011.
“Timely and accurate Forms U4 and U5 are critical to Finra's function in screening and monitoring registered representatives, and also provide information that may appear in BrokerCheck, a free tool that Finra provides the public so that it can research the background and experience of registered representatives,” Finra wrote.
An MML spokesperson would only say the firm cooperated with Finra and "was pleased to have resolved this matter."
While a Finra member firm needs to file the forms within 30 days of learning of a reportable event, the alleged delays ranged from three days to more than 1,100 days, the letter said. For example, MML allegedly learned of felony charges against a broker involving fraudulent sales practices in August 2020, but didn’t amend the broker’s Form U5 until mid-January 2021, about four months later.
In addition, there was no reasonable process for MML managers to report disclosable events to the firm’s Regulatory Reporting Team, which was responsible for regulatory filings and updates, despite the firm’s being called to task for exactly the same issue in 2011 and paying a $300,000 fine then, the letter said.
“The firm relied in part on a shared email address where employees could provide updates regarding the disposition of open complaints and arbitrations to the Regulatory Reporting Team,” the letter stated. “However, this process was not memorialized in the firm's procedures and there was no set cadence for when such searches would be performed and by whom.”
As such, the letter continued, no one was delegated to communicate updates to the Regulatory Reporting Team when a complaint was closed or settled, and there were no supervisory procedures to ensure it happened.
When the Finra investigation began in late 2018, MML hired a third-party vendor to revise its internal communication of reportable events, the letter said.
MML, which has been a Finra member firm since 1982, has 1,409 branch offices and about 7,300 registered persons, according to Finra.