Finra Sanctions Ex-LPL Broker Over ‘Outside’ Notary Biz
The Financial Industry Regulatory Authority has imposed a two-month suspension and $5,000 fine on a 26-year industry veteran whose notary work allegedly ran afoul of the regulator’s outside business rules.
Finra noted Riccio had performed notary services for firm customers, but his receipt of the $3,600 appears to have triggered a violation of Finra’s outside activities Rule 3270 prohibiting brokers from being compensated or having a “reasonable expectation of compensation” from any business activity outside the scope of their firm.
Riccio, who is presently registered with Securities America in Taunton, Massachusetts, and Naples, Florida offices, said in a brief interview that he had been a notary for 35 years and was never compelled to disclose it.
“I never listed it as an outside business activity because it never came up,” Riccio said. He declined to elaborate or say how his work ultimately came to LPL’s attention.
Riccio signed the letter of acceptance, waiver and consent without admitting or denying the Finra findings.
Riccio worked for LPL from 2007 until February 2020 when the firm filed a U5 termination notice that sparked Finra’s investigation. He previously worked for Commonwealth Financial Network, IDS Life Insurance, and American Express Financial Advisors, where he began his career in 1995.
Riccio’s detailed BrokerCheck report now reflects his notary services, which it says he spends half an hour on per week outside of normal business hours.
The case is another example of what lawyers and firm compliance officials have said is a hyper vigilant enforcement attitude on brokers’ outside activities.
Finra in February identified outside business activities among its 2021 examination priorities out of concern for potential customer conflicts, and in-house compliance officials said at the regulator’s annual conference in May that it is one of the main risk areas that firms have to watch, particularly in light of the remote work environment during the pandemic.
“Outside business activities create the biggest regulatory risk for firms,” said Evan Charkes, associate general counsel for Bank of America, which is the parent bank for Merrill Lynch Wealth Management.
Finra is “laser focused” on brokers’ unreported outside business activities, according to James Eccleston, a lawyer in Chicago who often represents brokers.
In another recent case, the regulator in April fined an Arkansas broker $5,000 and issued a five-week suspension for launching a recreational vehicle sales company without telling his firm.
Finra’s fine in Riccio’s case falls on the low end of the scale of what the regulator, based on its own guidelines, could impose, but the length of his suspension was closer to the high end of what’s possible, Eccleston said.
Bill Singer, a lawyer who regularly represents brokers facing Finra discipline, said in an email that the Riccio sanctions appear “harsh” and tread on “overregulation” given the offense and the lack of details in the regulator’s settlement letter. Many brokers may provide notary services to firm customers as part of their business, but it’s not clear what crosses outside business activity lines in some cases, he said.
“If FINRA was trying to send a message, that message was received with derision by most industry folks that I work with,” Singer said. “Rather than a regulatory settlement that industry professionals take seriously, it is largely viewed with eye rolling and head shaking.”
A Finra spokesperson declined to comment beyond the settlement letter’s language, which was negotiated by the regulator and Riccio.
Finra in 2018 proposed a rule change to clarify what types of activities constituted outside business activities and exclude some personal investments or other activities that did not raise investor protection risks. That proposal, however, is still pending.