2111 of the Financial Industry Regulatory Authority (FINRA) requires firms to have a supervisory
system to focus on the detection, investigation and follow-up of “red flags” indicating that a
Registered Representative may have recommended an unsuitable investment strategy with both a security
and a non-security component. For example, a Registered Representative’s
recommendation that a customer with limited means purchase a large position in a security might raise a
red flag regarding the source of funds for such a purchase. Additionally, the
liquidation of a large position in blue chip stocks paying regular dividends is cited in the Notice as a
“red flag” as to whether or not that recommendation is part of a broader investment strategy.
The suitability rule has also been determined to apply in
the context of a recommended investment strategy involving a security and an outside business activity,
requiring the brokerage firm to obtain a general understanding of the outside business activity (see
3270). The Regulatory Notice closes by indicating “. . . broker-dealers must
keep in mind that, in addition to suitability and supervisory responsibilities, firms have other
regulatory obligations to investigate unusual activity.”
We offer a free initial consultation to investors who feel
they may have been victimized by the improper recommendation of an improper investment strategy, or
non-security product or improper outside business activity.
The Law Offices of Timothy J. O’Connor is one of the
only law firms practicing securities law in the Tri-City Capital District of
York State, including Buffalo, Binghamton, Syracuse, Watertown, Utica, Kingston, New York
City/Manhattan, Long Island, and everywhere in between, as well as in the surrounding states of
Massachusetts, Vermont, New Hampshire, Connecticut, and New Jersey.
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