A firm that allegedly provided reps with court-side seats to NBA games, along with concert tickets and other valuable incentives, has been sanctioned by the U.S. Financial Industry Regulatory Authority Inc. (FINRA) for violating the regulator’s limits on gifts and entertainment.
FINRA alleged that between 2018 and 2024, wholesalers at First Trust Portfolios L.P. — a wholesale distributor for securities by affiliated investment companies — routinely violated the self-regulatory organization (SRO)’s rules on non-cash compensation by providing gifts that “significantly exceeded the annual limit and meals and entertainment that were so frequent and extensive as to raise questions of propriety.”
Among other things, it alleged that on more than 25 occasions they provided reps with court-side seats worth approximately US$3,200 per pair; that one rep received upwards of US$31,000 in sports and concert tickets over an 18-month period; and that a wholesaler required a rep to sell US$1 million worth of the firm’s products to get tickets to a hockey game.
At the time, the annual limits on gifts were US$100 per rep (which have since been raised to US$300 per rep).
Additionally, the SRO also alleged that the firm’s wholesalers falsified internal expense records stemming from more than US$650,000 worth of non-cash compensation that they handed out; and that the firm failed to adopt a supervisory system to comply with the rules on gifts and entertainment as well as on record-keeping requirements.
The firm settled the allegations, without admitting or denying the charges.
Under the settlement, it was fined US$10 million and agreed to provide annual compliance certifications to FINRA for three years regarding the gifts and entertainment rules.
“FINRA’s non-cash compensation rule is designed to protect investors by preventing financial recommendations from being unduly influenced by excessive gifts, entertainment or other perks supplied to broker-dealers or their registered representatives,” said Bill St. Louis, executive vice-president and head of enforcement at FINRA, in a release.