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The Importance of Compliance in Securities: Case Insights

Navigating the complexities of securities regulations is crucial for financial professionals and firms alike. The recent sanctions against Larry Joseph Michaels highlight the significance of adhering to regulatory requirements and the potential consequences of failing to do so. At Bakhtiari & Harrison, our experienced securities attorneys are dedicated to guiding clients through these challenges, ensuring compliance, and protecting their interests.

Case Overview: Larry Joseph Michaels

On April 18, 2024, Larry Joseph Michaels (CRD #4351477, Lake Forest, California) was fined $10,000 and suspended from association with any FINRA member in all capacities for two months. The sanctions were issued without Michaels admitting or denying the findings. The case centered on two main issues: exercising discretionary authority in customer accounts without proper authorization and failing to fully disclose his involvement in an outside business activity (OBA).

Unauthorized Discretionary Trading

The findings revealed that Michaels exercised discretionary authority in customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary by his member firm. Specifically, Michaels executed trades without communicating with the customers on the trade dates, violating the firm’s written supervisory procedures (WSPs), which explicitly prohibited the exercise of discretionary authority in brokerage accounts.

Undisclosed Outside Business Activity

Additionally, Michaels failed to notify his firm about the full extent of his participation in an OBA. Upon joining the firm, Michaels disclosed his ownership of an accounting business and his role in providing income tax preparation and accounting services. The firm approved this OBA based on the disclosed role. However, Michaels’ involvement went beyond what was initially disclosed. He provided additional services to his accounting clients, including some who were also his firm’s brokerage customers. These undisclosed roles included acting as a manager and consultant, assisting clients in managing and growing their businesses, acting as an incorporator, filing articles of incorporation, and being listed as a governor with decision-making authority for at least one company.

The suspension for Michaels is in effect from May 20, 2024, through July 19, 2024. This case underscores the importance of full disclosure and strict adherence to firm policies and regulatory requirements.

The Role of Securities Attorneys in Ensuring Compliance

Securities attorneys play a vital role in helping financial professionals and firms navigate regulatory complexities and maintain compliance. At Bakhtiari & Harrison, our securities attorneys bring extensive experience and expertise to each case, offering a range of services designed to protect clients and ensure adherence to regulations. Our services include:

  1. Regulatory Compliance Guidance: We provide comprehensive advice on regulatory compliance, helping clients understand and adhere to complex securities regulations, including those related to discretionary trading and OBAs.
  2. Developing and Implementing Supervisory Procedures: Our attorneys assist firms in developing and implementing effective WSPs that address all aspects of compliance, minimizing the risk of violations.
  3. Audit and Compliance Reviews: We conduct thorough audits and compliance reviews to identify potential gaps and recommend corrective actions, helping firms maintain robust compliance frameworks.
  4. Representation in Regulatory Proceedings: Our team represents clients in regulatory proceedings, ensuring they receive expert legal support and advocacy during investigations and hearings.

Preventing Regulatory Violations

The case of Larry Joseph Michaels serves as a reminder of the importance of proactive compliance measures. By working with experienced securities attorneys, financial professionals can better understand their obligations and avoid the pitfalls that lead to sanctions. Key strategies for preventing regulatory violations include:

  • Obtaining Proper Authorizations: Ensure that all discretionary trading activities are authorized in writing by customers and that accounts are accepted as discretionary by the firm.
  • Full Disclosure of Outside Business Activities: Fully disclose all OBAs to the firm, including the scope of involvement, to avoid conflicts of interest and ensure compliance with firm policies.
  • Adhering to Firm Policies: Strictly adhere to firm policies and procedures, including those outlined in WSPs, to prevent unauthorized activities and ensure regulatory compliance.
  • Ongoing Training and Education: Participate in ongoing training and education programs to stay updated on regulatory requirements and best practices in the securities industry.

Contact Bakhtiari & Harrison Today

For expert legal advice and support in securities law, including regulatory compliance and representation in arbitration proceedings, contact Bakhtiari & Harrison. Our team of experienced securities attorneys is here to provide the guidance and representation you need to navigate regulatory challenges and achieve successful outcomes. Visit our website or call us today to learn more about our services and how we can assist you.