“As of January 2021, more than half of the firm’s associated persons were maintaining one or more outside brokerage accounts that had not been disclosed to the firm.”

💡 This shows the majority of the firm’s employees were operating outside the firm’s knowledge and supervision, creating massive potential for conflicts of interest.

“For example, for one year during the relevant period, seven associated persons failed to submit the required certification, and ten associated persons submitted certifications with incomplete disclosures, without reasonable follow-up from the firm.”

💡 The firm had no functioning system to ensure it even knew about the accounts it was supposed to be monitoring.

“For example, with respect to a sample of 15 accounts disclosed by the firm’s representatives, the firm failed to obtain and review six statements for December 2020.”

💡 Even for known accounts, the firm failed to obtain basic documentation in 40% of cases in the sample.

“From October 2019 through August 2023, the firm’s manual review of hundreds of monthly account statements was performed by a single individual, which was unreasonable given the volume of monthly statements subject to review.”

💡 The firm severely under-resourced a critical compliance function for nearly four years.

“Additionally, although the firm attempted to identify trades in securities that appeared on the firm’s watch list, there were multiple instances of associated persons buying or selling watch list securities in disclosed outside brokerage accounts that were not detected or subject to further investigation by the firm given the firm’s unreasonable manual review.”

💡 The firm’s broken systems failed to catch exactly the type of suspicious trading they were designed to prevent.

“The firm had no system in place to notify associated persons or their supervisors that statements were missing and had no procedures for following up on missing statements.”

💡 The firm didn’t even know when it wasn’t receiving required documentation.

“Berkshire’s WSPs failed, however, to identify any steps the firm would take to verify that it actually received and reviewed duplicate statements for each disclosed outside brokerage account. The WSPs also failed to provide guidance on how the firm would detect and investigate potential securities-related violations.”

💡 The firm’s policies looked good on paper but provided no actionable guidance for implementation.

“In addition, the firm maintained a list of outside brokerage accounts but did not regularly reconcile the list against the duplicate statements received by the firm.”

💡 The firm had no way to verify its records were accurate or up to date.

“Further, the manual review did not facilitate identification of patterns of activity over time or across accounts.”

💡 The review method was inherently incapable of detecting sophisticated trading patterns that might indicate violations.

“From October 2019 through the present, Berkshire failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to supervise outside brokerage accounts.”

💡 This is the fundamental charge: the firm failed to do its basic supervisory job for over five years.

“This matter originated from a FINRA cycle examination of Berkshire.”

💡 The violations were discovered by regulators during routine examination, not through the firm’s own internal controls.

“As stated in Regulatory Notice 16-22, sound supervisory practices require that a member firm monitor personal accounts opened or established outside of the firm by its associated persons.”

💡 FINRA had already provided clear guidance that Berkshire ignored.

“The firm implemented an electronic monitoring system for review of representatives’ disclosed outside brokerage accounts in August 2023.”

💡 The firm only implemented adequate technology nearly four years after the problems began.

“Although the firm required that its associated persons submit annual certifications disclosing their outside brokerage accounts, the firm had no system in place to confirm it received all required certifications.”

💡 The firm required something but had no way to verify compliance with its own requirement.

“This AWC is submitted on the condition that, if accepted, FINRA will not bring any future actions against Respondent alleging violations based on the same factual findings described in this AWC.”

💡 The settlement protects the firm from future action based on these same facts, despite never formally admitting wrongdoing.