A broker with Cambridge Investment Research was penalized by regulators who said he did not disclose referral fees he received from a tax consultancy service, according to AdvisorHub.
California-based broker Shuai Wang was fined $5,000 and suspended for three months by the Financial Industry Regulatory Authority. The matter covers the period from August 2021 through July 2023, when FINRA said Wang failed to timely and accurately disclose an outside business activity for which he received compensation.
“In August 2021, without providing prior written notice to Cambridge, Wang entered into a referral arrangement with a tax consultancy service under which he earned percentage-based referral fees when customers he referred invested in tax-oriented investments offered by the consultancy,” FINRA said in its settlement letter. “Wang knew that Cambridge’s written supervisory procedures required its registered persons to provide written notice and receive prior approval of all outside business activities.”
FINRA said that when Wang belatedly sought his firm’s approval of his activity in January 2022, he misstated the activity’s start date, understated his compensation by reporting $1,000 in expected annual earnings despite having already earned approximately $4,500 in referral fees, and misrepresented his involvement by claiming he merely made introductions and asked questions about strategies.
In reality, regulators said Wang facilitated and participated in all communications between customers and the consultancy, collaborated with the consultancy to select the products to pitch to customers, and in some instances directed specific analyses modeling investment returns.
According to FINRA, Wang referred 26 Cambridge customers and one former customer to the consultancy. Six firm customers and one former customer purchased approximately $495,000 in tax oriented investments through a leveraged charitable giving program, generating about $30,000 in referral fees for Wang. But Wang allegedly failed to update his outside business activity disclosure, and falsely attested in an annual compliance questionnaire that he had fully and accurately disclosed all outside business activities to the firm.
Wang was found to have violated FINRA Rules 3270 and 2010. FINRA Rule 3270 states that “[n]o registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.”
A violation of FINRA Rule 3270 is also a violation of FINRA Rule 2010, which requires associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.
Wang did not admit or deny FINRA’s allegations but accepted and consented to the findings. Neither he nor his lawyer, Celiza Bragança, in Wilmette, Illinois, responded to requests for comment, AdvisorHub reported.. A spokesperson for Cambridge also did not respond to a request for comment.
The attorneys at Hyman Cotter have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Hyman Cotter at (833) 665-0784 or through our online contact form for a no-cost evaluation of your matter.
