On June 5, 2015, E1 Asset Management, Inc. (“E1 Asset Management”), Ron Y. itin (“Itin”), and Ahsan R. Shaikh (“Shaikh”) submitted a Letter of Acceptance Waiver and Consent (“AWC”) to settle allegations by the Financial Industry Regulatory Authority (“FINRA”) that they collectively failed to maintain a reasonable supervisory system at E1 Asset Management. Both Itin and Shakih are employed by E1 Asset Management in supervisory capacities. A copy of the FINRA AWC may be found here.
FINRA alleged that E1 Asset Management, Itin, and Shaikah violated NASD Rules 3010, 2110 and FINRA Rule 2010 by failing to establish and maintain E1 Asset Management’s supervisory systems. According to the AWC, from July 2008 to April 2012, Itin and Shaikh failed to establish a supervisory system reasonably designed to: 1) review registered representatives’ communications with the public; 2) review trading to detect and monitor potential churning activity; 3) review the new account opening process to ensure customer suitability profiles were properly established; 4) perform adequate suitability review for leveraged exchange traded funds (“ETFs”) in customer accounts; and 5) supervise the activities of registered representatives subject to E1 Asset Management’s heightened supervision program.
The FINRA allegations of supervisory failures came after numerous customers commenced FINRA arbitrations alleging sales practice abuses by E1 Asset Management registered representatives. According to FINRA, many of these arbitrations concluded in settlements. However, the form release agreements that E1 Asset Management utilized during this time contained ambiguous language that could have been interpreted by the customers as prohibiting them from cooperating with regulatory investigations. Specifically, those agreements stated that customers must not “[c]ommence or prosecute, or assist in the filing, commencement or prosecution in any government agency, arbitral tribunal, self-regulatory body or court in any claim or charge against E1 Asset Management.” FINRA alleged that E1 Asset Management, Itin, and Shaikah violated NASD Rule 2111 and FINRA Rule 2010 for including impermissible confidentiality provisions in its form settlement and release agreements.
Without admitting or denying the FINRA allegations, E1 Asset Management submitted to censure and a $25,000 fine to settle the FINRA allegations. Additionally, Itin and Shaikh agreed to consecutive 1-month suspensions from acting in a supervisory capacity.
The FINRA rules require that broker-dealers and investment advisors maintain reasonable written supervisory procedures. When your broker-dealer fails to maintain those supervisory systems it may allow disreputable brokers to defraud customers. The securities fraud attorneys at Lax & Neville LLP have successfully represented clients with claims against broker-dealers for failure to supervise its registered representatives’ misconduct. If you have suffered damages as a result of your broker’s sales practice abuses, contact Lax & Neville LLP at (212) 696-1999 and schedule a consultation.