FINRA hits FA for running subscription-based investor website | LLC Herskovits
On May 16, 2022, FINRA issued an Acknowledgment and Consent (“AWC”) waiver in which FA Robert Bennett Zamani agreed to a 14-month suspension and a $27,500 fine for violation of Rule 3270 FINRA (Outside Business Activities), Rule 2210 (Communications with the Public), Rule 4511 (Books and Records) and, as always, Rule 2010 (Business Honor Standards). A copy of the AWC is available at: https://www.finra.org/sites/default/files/fda_documents/2020066847301%20Bennett%20Robert%20Zamani%20CRD%206198730%20AWC%20gg.pdf. The investigation into Zamani was sparked by a U5 form filed by his former company, Morgan Stanley.
The violation of Rule 4511 was based on Zamani’s use of company-related text messages that were not retained by Morgan Stanley, effectively causing Morgan Stanley to violate its obligation to maintain such communications under the rule. 4511. This is an easily avoidable rule violation that so many FAs seem to fall into.
More interesting, however, are Zamani’s alleged breaches of 3270 and 2210. Zamani formed a company in 2015 before partnering with Morgan Stanley. Without ever disclosing the company to Morgan Stanley, between January 2017 and April 2020, Zamani, through that company, offered subscription investment content. On its website, which was created and operated by Zamani, the company marketed itself as a subscription-based platform providing investment content for aspiring day traders to “learn the skills needed from professional licensed stock traders.” to become a profitable trader”. The company maintained a blog on its website, containing investment-related content, and maintained a publicly accessible YouTube channel, with investment-related videos and periodic newsletters distributed to subscribers. Remarkably, during this 3-year period, Zamani earned $360,000 from his follower-based investment advisory firm.
FINRA Rule 2210 requires “a duly qualified principal of the Member approves each retail communication. . . .” Retail communication is broadly defined as “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within a 30 calendar day period”. A retail investor is anyone other than an institutional investor “whether or not the person has an account with a member”.
An important exception to this review process is that it does not apply to a communication “that does not make a financial or investment recommendation or promote a member’s product or service. “. Interestingly, the AWC accuses Zamani of “disseminating investment-related communications,” which is very different from the language of the rule, which requires recommending an investment or promoting a product.
FINRA Rule 2210 not only calls for a review of communications with the public, but also sets out content standards and Zamani has been accused of violating several of those standards. The AWC accused Zamani of issuing communications that (a) were not fair and balanced because, among other things, he failed to explain the risks associated with investing, (b) made ” promising statements” regarding returns, (c) made projections of investment performance, (d) contained testimonials without required information, (e) contained securities recommendations without required information, (f) contained performance data without required information and (g) failed to disclose Zamani’s association with Morgan Stanley. Each of these content standards is specifically addressed in Rule 2210.
As you can imagine, Zamani apparently never disclosed this activity to Morgan Stanley or asked Morgan Stanley to review and approve any communications he posted through YouTube, his website, or his newsletters. Without a doubt, Morgan Stanley wouldn’t have allowed anything, and a profit of $360,000 over three years is probably more money than Zamani made at Morgan Stanley.
Zamani’s alleged conduct violated FINRA rules 3270 and 2210. It was not a closed case, but the FA should know the constraints of rule 2210. It is one of the most complicated and detailed rules FINRA and the FA would be well advised to seek legal or compliance advice. before sending any investment-related communications to more than 25 people.