Park Avenue Securities, a large independent broker-dealer owned by Guardian Life Insurance Co. of America, was fined $30,000 by Finra this week for years of not knowing about — and then failing to scrutinize properly — a registered rep's medical cannabis business, along with the unnamed rep's private securities transactions involving that business.
"From December 2014 through April 2018, Park Avenue Securities failed to reasonably supervise a registered representative, who engaged in an undisclosed outside business activity involving the operation of a medical cannabis business and participated in undisclosed private securities transactions involving" that company, according to a Financial Industry Regulatory Authority Inc. settlement that was released Wednesday.
"The firm failed to take reasonable steps to investigate red flags that the representative was engaged in an undisclosed outside business activity and unapproved private securities transactions," according to Finra.
Park Avenue Securities has 2,400 financial advisors and reps at 400 branches. It agreed to Finra's findings in the matter without admitting or denying them. The firm's president, Marianne Caswell, did not return a call Friday morning to comment.
Over a period of almost 3½ years, the Park Avenue Securities rep helped manage and operate the medical cannabis business. He was given an ownership stake in the business in exchange for his assistance in setting it up, according to Finra. The rep also received the medical cannabis company's mail at his Park Avenue Securities office, met with insurance agents regarding the company, and worked on the company's acquisition of another firm.
The representative solicited Park Avenue Securities customers to invest in the medical marijuana company and worked with customers to execute those transactions, according to Finra.
Over the period at issue, the broker-dealer's email review system flagged more than two dozen problematic emails the reps sent or received indicating he was involved in the outside business, but the firm eventually only focused on one of those, according to Finra. The rep later denied any knowledge of the medical cannabis business but was terminated, meaning fired, in 2019, when the information eventually came to light.
Park Avenue Securities was also censured by Finra and agreed to revise its supervisory and compliance issues in three months, according to the settlement.
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