FINRA: Taglich Brothers Violates Reg BI, Faces Statutory Disqualification
Taglich Brothers Inc., a New York-based broker-dealer, has agreed to a $60,000 fine and a censure to resolve allegations that it willfully violated federal securities laws and FINRA rules, according to the Financial Industry Regulatory Authority. FINRA announced the settlement after findings that the firm failed to comply with Regulation Best Interest, or Reg BI, and failed to maintain required supervisory controls for more than seven years.
According to the letter of acceptance, waiver and consent, or AWC, Taglich Brothers failed to comply with Reg BI’s conflict of interest and compliance obligations starting in June 2020.
FINRA found that the firm’s business model, which involves raising capital for issuers while sharing fees and personnel with a non-member private equity entity, created significant conflicts of interest. Specifically, several associated persons at the firm held ownership stakes or served as directors for the very companies they recommended to retail customers.
Despite knowing about Reg BI requirements prior to the June 2020 compliance date, the firm did not establish any written policies for compliance until July 2022. Even then, the procedures were found to be inadequate, stating that they merely recited regulatory language and were not tailored to the firm’s actual business.
The enforcement action also highlighted the firm’s failure to deliver Form CRS, the client relationship summary required under SEC rules. This document is intended to help retail investors understand a firm’s services, fees, and conflicts of interest.
According to FINRA, Taglich Brothers failed to provide Form CRS to retail investors who participated in private placement offerings through the firm but did not hold formal accounts there. In addition, approximately two years, the firm had no written supervisory procedures reasonably designed to ensure compliance with Form CRS delivery requirements.
Beyond Reg BI, FINRA also found that Taglich Brothers failed to conduct annual supervisory control testing as required under Rule 3120 since at least June 2018. Member firms are required to annually test and verify that their supervisory procedures are reasonably designed to achieve compliance. The firm’s designated principal also failed to submit required annual reports to senior management detailing the results of that testing or any significant exceptions for nearly eight years.
As part of the settlement, Taglich Brothers accepted FINRA’s findings without admitting or denying them. In addition to the $60,000 fine, the firm was told it must correct the identified issues within 60 days and have a senior principal certify in writing that the firm has established a supervisory system reasonably designed to comply with Reg BI and Form CRS.
Because the firm was found to have willfully violated the Securities Exchange Act of 1934 rules, it is now subject to a statutory disqualification.
A member firm since January 1992, Taglich Brothers Inc. has nine registered representatives and one branch in Cold Spring Harbor, N.Y. The firm engages in retail equity trading, investment advisory services, and investment banking including private placements and underwriting.
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