Falsifying or Withholding Documents
Books and records integrity is fundamental to securities regulation. Falsifying documents or refusing to cooperate with regulators can result in severe penalties, including permanent industry bars.
Signatures of Convenience
- Signing a customer's name, even with oral permission, is prohibited
- All signatures must be authentic and made by the person whose name appears
- This applies to account applications, trade confirmations, and all other documents
- There is NO exception for "the customer said it was okay"
Exam Tip: Gotchas
- Oral permission does NOT make it okay to sign someone else's name. A written power of attorney (POA) is required for someone else to act on a customer's behalf, and even then, the authorized person signs their OWN name "as agent for."
Books and Records Violations
FINRA and SEC rules require firms to create and maintain accurate records. The following are serious violations:
| Violation | Example |
|---|---|
| Predating or postdating trade tickets or documents | Changing the date on a trade ticket to make it appear a trade occurred at a different time |
| Falsifying customer information | Changing a customer's net worth or investment objectives to make a trade appear suitable |
| Maintaining false records | Creating fictitious account statements or transaction records |
| Destroying records during the retention period | Shredding documents that must be kept for 3 or 6 years |
| Destroying records to obstruct an investigation | Deleting emails after learning of a regulatory inquiry |
Think of it this way: If the record exists, you cannot alter it. If the retention period has not expired, you cannot destroy it. And if regulators ask for it, you must hand it over.
Exam Tip: Gotchas
- Falsifying customer information to make a trade look suitable is a SEPARATE violation from making an unsuitable recommendation. Both can be charged independently.
- Destroying records before the retention period expires is illegal on its own, even if no investigation is underway. Destroying them after an investigation begins adds an obstruction charge on top.
Cooperation with FINRA Investigations
- FINRA requires members and associated persons to fully cooperate with investigations
- When FINRA requests information, testimony, or documents, you must provide them
- Failure to respond is itself grounds for barring the person from the industry
Why Cooperation Requests Matter
- More than one-third of FINRA enforcement cases resulting in industry bars involve failures to cooperate with information requests
- A suspension for non-compliance is typically converted to a permanent bar after 90 days if the person still has not complied
- Invoking the Fifth Amendment in response to a FINRA information request is treated as failure to cooperate
Exam Tip: Gotchas
- Failure to respond to a FINRA information request is one of the most common reasons for being barred from the industry. Even if the underlying issue is minor, ignoring a regulatory request creates a separate, serious violation.
- The 90-day clock is critical. A temporary suspension becomes a permanent bar if the person does not comply within 90 days.