Finra suspends, fines its own board member

Joel Blumenschein, president of Freedom Investors Corp. and a board member of the Financial Industry Regulatory Authority Inc., has been suspended as a principal by Finra for three months and fined $30,000 in a failure-to-supervise case. Mr. Blumenschein settled the case this week, without admitting or denying the allegations. Finra alleged that Mr. Blumenschein failed to supervise a broker who engaged in unsuitable penny stock trades, and after the affected client complained, the firm improperly agreed to guarantee the client against losses. As part of that guarantee, Finra said Freedom Investors got the customer to agree not to file a complaint with Finra. In its settlement order, Finra said Freedom Investors "maintained an unstructured, deficient system" for supervision. "The supervisory system was so inadequate that [Mr.] Blumenschein was unable to provide a consistent or coherent description of it during his investigative testimony," the order said. "His testimony, under oath, was at times both evasive and contradictory, thus highlighting the system's inadequacies." Finra also claims that an employee of the firm doctored records of an examination report of the broker. In an interview, Mr. Blumenschein said it was easier to settle the case than fight it. "It was a business decision," he said. "The firm is safe, my [brokers] are safe, and everybody's going to work and customers are being served." Mr. Blumenschein said he was limited in what he could say about the case, "but suffice it to say in this age where people aren't taking responsibility for what happens on their watch, I am." In a regulatory filing last September, when Finra brought the charges, Mr. Blumenschein denied the allegations. Mr. Blumenschein remains on Finra's board. The suspension was only for Mr. Blumenschein's principal activity, explained Finra spokeswoman Nancy Condon, so he is still a registered person and eligible to serve.