September 21, 2020
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by SeedChange Execution Services, Inc. (SeedChange) for allegedly failing to establish, maintain, and enforce a supervisory system to evaluate whether a registered representative’s proposed outside business activities (OBAs) constituted outside securities activities. SeedChange, a FINRA member firm since 2013, is headquartered in San Francisco, California and employs approximately 20 registered representatives.
According to the AWC, from at least November 2017 to March 2018, SeedChange knew that one of its registered representatives was engaging in OBAs that involved an investment fund, but failed to evaluate whether this activity included securities activity. The registered representative completed an OBA form disclosing his involvement with a digital assets investment fund as a portfolio manager and owner of the fund’s general partner. SeedChange approved the OBA, and the representative proceeded to raise at least $525,000 for the investment fund from six investors who were not customers of SeedChange.
FINRA Department of Enforcement asserts that SeedChange violated FINRA Rules 3110, 3270, and 2010. Despite approving the OBA, SeedChange failed to understand if this activity would interfere with or compromise the representative’s responsibilities to the firm or its customers, among other things. By signing the AWC, SeedChange consented to a censure and $15,000 fine.