June 10, 2019
FINRA recently filed a Complaint against Southeast Investments, N.C., Inc. (SEI) and its president for producing fabricated documents to FINRA staff and falsely testifying during an on-the-record interview.
According to the Complaint, FINRA was investigating Black’s purported inspections of five SEI offices and his failure to ensure that SEI retained business-related electronic communications from March 2010 to May 2015. FINRA alleges that SEI failed to retain electronic communications, in violation of Section 17(a) of the Securities Exchange Act of 1934 and the Exchange Act Rule 17a-4. SEI also allegedly failed to exercise reasonable supervision to prevent the failure to inspect offices and retain firm emails.
In a Hearing Panel Decision that went before the National Adjudicatory Council and was released on May 23, 2019, the Hearing Panel affirmed that Black and SEI provided FINRA fabricated documents and false testimony regarding Black’s purported evaluation of SEI offices. They revoked the allegation that the SEI and Black failed to establish and maintain a system to ensure the SEI offices were inspected due to lack of clarity surrounding the types of offices the SEI offices were, thus they could not demonstrate how frequently the offices needed to be inspected. The Hearing Panel confirmed, however, that Black did not inspect four of the five SEI offices he claimed he had inspected and that SEI and Black failed to maintain a supervisory system to retain and review emails. Finally, the Hearing Panel affirmed that SEI and Black failed to retain 16 business-related emails of Richard Sebastian, an SEI representative, but reversed the finding that SEI “willfully” violated securities laws in failing to retain those emails.
As a result, the Hearing Panel imposed a $243,000 fine on SEI and barred Black from associating with any FINRA member firm in any capacity.