Earlier this week, the Certified Financial Planner Board of Standards (CFP Board) announced a new set of public sanctions against 20 current or former CFP professionals or candidates for CFP certification.
Public sanctions taken by the CFP Board, in order of increasing severity, are public censures, suspensions, temporary bars, permanent bars and revocations of the right to use the CFP marks.
In many cases, the public sanctions are the result of “historical investigations” the board opened following background checks conducted on all CFP professionals. These checks are meant to detect potential misconduct that previously had not been reported to the CFP Board. In this latest round of sanctions, 13 of the actions taken by the CFP Board were the result of historical investigations.
Examples of relevant misconduct include regulatory actions, firm terminations, customer complaints, arbitrations and civil court litigation that involve professional conduct, criminal matters, bankruptcies, civil judgments and tax liens.
Unlicensed Securities Sales
In one case identified by the CFP Board that has resulted in a public censure, a financial professional admitted to engaging in unlicensed sales representative activity by receiving transaction-based compensation in connection with the sale of real estate investment trusts (REITs) and private placement securities. According to the CFP Board, these actions were undertaken in violation of Rule 4.3 of the CFP’s Rules of Conduct.
The adviser also consented to findings that his firm’s advertising materials, for which he was responsible, falsely represented an affiliation with a broker/dealer (B/D) entity that was, in fact, no longer registered, and falsely stated that the firm was a member of the Securities Investor Protection Corp. (SIPC), which was a violation of Rule 2.1 of the Rules of Conduct.
As a result of this conduct, the adviser and his firm entered into a consent order with the Colorado Securities Division (CSD) in August 2017, which required the adviser to reimburse clients for $35,000 in transaction-based compensation and imposed other undertakings. Subsequently, the adviser made a false statement to CFP Board on his ethics declaration in December 2018 by failing to disclose the CSD order, which was a violation of Rule 6.2 of the Rules of Conduct.
Taxes and College Tuition
In another case, the CFP Board found that a financial services professional prioritized paying for college tuition and expenses over paying taxes to the Internal Revenue Service (IRS) for a period of six years, resulting in the IRS filing federal tax liens against the adviser totaling almost $230,000. Currently, the adviser is making timely payments to the IRS pursuant to an installment agreement, but the CFP Board determined that the adviser’s conduct violated Rule 6.5 of the Rules of Conduct, which provides that a certificate holder shall not engage in conduct which reflects adversely on his integrity or fitness as a certificate holder, upon the CFP marks, or upon the profession.
Accordingly, the CFP Board determined to issue the individual an order of public censure.
Sensitive Data Violation
Another issue pointed out by the CFP Board occurred when a financial professional printed and removed hard copies of the nonpublic personal information of 1,300 customers of his firm, without the firm’s or the customers’ knowledge or consent.
The information included the customers’ Social Security numbers, account numbers and dates of birth. Furthermore, the adviser retained this information in a secure location without the firm’s or the customers’ knowledge or consent for approximately six weeks after his resignation from the firm.
After the firm determined that the adviser had removed the nonpublic personal information, the adviser returned the information. By thus improperly removing and retaining customer information, the adviser caused the firm to violate Regulation S-P, and in so doing, violated Financial Industry Regulatory Authority (FINRA) Rule 2010.
Accordingly, the CFP Board issued a public censure to the adviser.
Copied Customer Signature
Another adviser received a 30-month suspension of his right to use the CFP certification marks after the CFP Board determined that he violated Rule 6.5 of the Rules of Conduct when he copied a client’s signature to asset transfer paperwork in June 2020, with the goal of implementing the client’s transition to his new firm.
Among other issues, the adviser was also found to have violated the Rules of Conduct when he failed to treat client information as confidential by saving copies of documents containing nonpublic personal information, including names, birthdates, Social Security numbers and account numbers for at least four customers into an electronic folder on a thumb drive prior to leaving his previous firm to start his own firm—with the intention of using this information at his new firm.
The adviser agreed to the CFP Board’s findings that he entered into a letter of acceptance, waiver and consent order with FINRA, in which FINRA determined that the adviser violated its Rule 2010.
Sale of Unsuitable Products
In another situation that resulted in a temporary one-year bar on an adviser’s opportunity to apply for the CFP certification, an adviser failed to timely respond to the CFP Board’s notice of investigation.
In this case, the CFP Board sought to investigate an arbitration filed against the adviser, in which it is alleged that the adviser sold unsuitable products. The adviser did not provide a response to CFP Board’s second notice of investigation within 30 calendar days, as required by Article 1.1 of the Procedural Rules.
Improper Hedge Fund Operation
In one case resulting in a permanent bar of an adviser’s right to use the CFP marks, the CFP Board sought to investigate a cease and desist and revocation order filed against an adviser by the U.S. Virgin Islands Division of Banking, Insurance and Financial Regulation.
That regulator found the adviser committed a breach of fiduciary duty and committed other misconduct related to her operation of a hedge fund and her lack of cooperation with auditors. The adviser involved did not timely provide a response to the CFP Board’s notice of investigation or the CFP Board’s second notice.
In accordance with Article 4.2 of the CFP Board’s Procedural Rules, based on its determination of the seriousness, scope and harmfulness of the adviser’s conduct, the CFP Board issued an administrative order of permanent bar.
One case resulting in a permanent revocation of an adviser’s CFP certification followed the adviser’s failure to comply with a CFP Board interim suspension order.
The CFP Board had suspended the adviser’s right to use the CFP certification marks after the U. S. Securities and Exchange Commission (SEC) filed a civil action against him, alleging that he participated in a “cherry-picking scheme.” The adviser subsequently failed to timely provide the CFP Board with evidence of his compliance with the interim suspension order.
Accordingly, under Article 4.1.c of the Procedural Rules, the adviser was deemed in default. In accordance with Article 4.2 of the Procedural Rules, based on the CFP Board’s determination of the seriousness, scope and harmfulness of his conduct, the CFP Board issued an administrative order of revocation.
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