Four brokerage firms are being sanctioned by the U.S. Financial Industry Regulatory Authority Inc. (FINRA) for failing to properly supervise their securities lending activity.
The four firms — M1 Finance LLC, Open to the Public Investing, Inc., SoFi Securities LLC, and SogoTrade, Inc. — agreed to pay US$2.6 million, including US$1 million in customer restitution, to settle the charges, without admitting to or denying the allegations.
According to the industry self-regulatory organization, the firms failed to establish proper oversight of their securities lending offerings, enrolled all new clients in their securities lending programs and failed to pay compensation to clients that was promised in account opening disclosures.
“It is imperative that FINRA member firms offering fully paid securities lending programs exercise particular care in supervising them,” said Bill St. Louis, executive vice president and head of enforcement at FINRA, in a release.
The SRO said the US$1 million in restitution will compensate clients, “whose securities were lent out over a dividend date and who therefore potentially suffered adverse tax consequences as a result of their participation in the fully paid securities lending programs.”