Independent Financial Group, LLC (CRD #7717, San Diego, California)

Independent Financial Group, LLC (CRD #7717, San Diego, California)

September 23, 2024 – An AWC was issued in which the firm was censured, fined $500,000, and required to certify that it has remediated the issues identified in the AWC and implemented a reasonably designed supervisory system, including WSPs. All customers have already either received restitution or are expected to receive full restitution through a separate agreement. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise excessive trading and assure compliance with Reg BI, and failed to reasonably supervise a registered representative who excessively traded five customers’ accounts, most of whom were elderly. The findings stated that the firm’s WSPs made compliance staff, who were not responsible for supervising registered representatives, responsible for reviewing an Excessive Trading Report available through the firm’s clearing firm. However, instead of reviewing the Excessive Trading Report, the firm’s compliance staff reviewed an internal excessive trade alert, which suffered from certain deficiencies of which the firm was unaware. In addition, the firm’s procedures failed to provide reasonable guidance about how compliance personnel should conduct review of excessive trade alerts or when they should take action based upon the information contained in those alerts, and the firm did not include guidance on the use of cost-to-equity ratios or guidance on what turnover rates could signal excessive trading. When the firm’s compliance staff reviewed excessive trade alerts, they frequently closed them without conducting further investigation into whether the trading was consistent with the customer’s best interest. he firm’s WSPs also contained a provision making supervisory staff responsible for identifying potential excessive trading through their overall review of client transactions appearing on trade blotters and trade-by-trade alerts. A Disciplinary and Other FINRA Actions senior supervisor at the firm, however, instructed supervisory personnel to assess each alert only as it pertained to the specific trade generating the alert. The firm failed to provide the firm’s supervisory staff with procedures, tools, or training to identify potential excessive trading by assessing a series of transactions. The firm provided no guidance to supervisors regarding what factors might suggest that a representative was excessively trading an account or what steps they should take if they identified potential excessive trading. The findings also stated that the firm failed to reasonably respond to red flags of excessive trading by the representative. The representative excessively traded the customers’ accounts, directing frequent in-and-out trading and causing a level of trading that was inconsistent with the customers’ investment profiles and that was not in their best interest or was not suitable. Collectively, these customers paid more than $2.2 million in total trading costs and incurred realized losses totaling approximately $2.2 million, inclusive of commissions. The findings also included that the firm failed to timely and completely respond to FINRA’s requests for documents and information. FINRA sent the firm a request for, among other things, documentation of its supervisory review of all exceptions, alerts, or other documents to supervise for excessive trading, active accounts, and excessive commissions for customers of the representative. The firm’s response to that request was incomplete because it failed to include any of the Excessive Trading Reports available through its clearing firm and failed to include any excessive trade alerts that had stopped appearing on the firm’s system. FINRA sent a series of follow-up requests to the firm to ascertain the completeness of the firm’s response. After multiple discussions with FINRA, the firm contacted the service provider that generated the firm’s excessive trade alerts and became aware that excessive trade alerts could and had stopped appearing even if they had not been cleared. The firm then made a complete production of all excessive trade alerts and completed its production of the Excessive Trade Reports. (FINRA Case #2023080627901) If you have suffered losses as a result of Independent Financial Group's act and/or actions, we would like to hear from you. We are currently investigating claims on behalf of clients who have suffered significant losses in their portfolios that are managed by Independent Financial Group. The Schwartz Law Firm represents investors in claims against financial advisors and their firms. If you have questions about your potential claim or need assistance from an investment fraud lawyer, please contact us at 866-618-0545 or email Matthew Schwartz directly at mschwartz@tslfirm.com.