Finra arbitrators ding firm, executives $3 million for broker’s outside business at his own RIA

Case hits Spire Securities and its CEO and COO for activities of barred adviser who ran Ponzi scheme.

Finra arbitrators awarded $3 million to investors who allege they were ripped off by a broker operating an outside business not properly overseen by his firm.

In a 2-1 vote, the Financial Industry Regulatory Authority Inc. panel found Spire Securities and the firm’s chief executive David Lloyd Blisk and chief compliance officer Suzanne Marie McKeown liable for failing to supervise Patrick Evans Churchville, who fraudulently sold investments to the 23 claimants in the case.

Mr. Churchville made the sales, which occurred between 2009-11, through ClearPath Wealth Management, a Rhode Island registered investment adviser he ran. The claimants in the Finra arbitration were a subset of the victims of Mr. Churchville’s $21-million Ponzi scheme. He pleaded guilty to wire fraud and tax evasion in 2016.

The victims in the Finra case alleged that Spire Securities also was at fault for not stopping Mr. Churchville from harming them while he worked at Spire. They requested $12.3 million in compensatory damages.

“The decision accurately places the blame on Spire Securities, its CEO and its CCO,” said Adam Gana, managing partner at Gana Weinstein, who represented the claimants. “They didn’t sufficiently supervise that conduct and they were held responsible for it.”

But Mr. Blisk, the CEO, said Spire was blameless.

“We think this is an outrageous result,” he said. “The dissenting arbitrator was correct. We’re considering our options. In all likelihood, we’ll seek a motion to vacate.”

The arbitration case was the first regulatory event for Spire Securities, a subsidiary of Spire Investment Partners. Mr. Blisk said none of the claimants lost money while at Spire and no regulator has investigated Spire over Mr. Churchville’s Ponzi scheme, which occurred at an advisory firm that was separate from Spire.

“We weren’t a culpable party,” Mr. Blisk said.

But Mr. Gana said the case is an example of why brokerage firms must oversee their registered representatives’ outside business activities. Finra proposed a rule in February 2018 that would ease brokers’ supervisory requirements for the work their reps do at unaffiliated RIAs.

The Finra proposal “takes away important investor protections,” Mr. Gana said.