The Financial Industry Regulatory Authority (FINRA) has suspended a Cambridge Investment Research financial advisor for three months and imposed a $5,000 fine after determining that he failed to properly disclose an outside business activity that generated compensation, according to a settlement letter cited by AdvisorHub.
The broker, Shuai Wang of San Jose, California, entered into a settlement with FINRA concerning conduct that occurred between August 2021 and July 2023. According to FINRA, Wang received compensation from an outside tax consultant after referring clients to tax-oriented investment products offered through the consultant's business.
FINRA found that Wang referred 26 Cambridge customers and one former customer to the consultant. AdvisorHub reports that six of those individuals ultimately invested approximately $495,000 in tax-related investment products, resulting in roughly $30,000 in referral compensation for Wang.
According to the settlement, known as an Acceptance, Waiver and Consent ("AWC"), Wang did not timely or accurately disclose the full scope of the arrangement to Cambridge. Although he reported the outside business activity in January 2022, FINRA stated that he disclosed it only after the activity had already begun and failed to provide complete information about his role and compensation.
FINRA alleged that Wang understated the compensation he expected to receive, inaccurately described when the referrals began, and represented that his involvement was limited to making introductions and answering questions. According to AdvisorHub, the regulator found that his participation extended much further.
According to FINRA, Wang actively facilitated communications between clients and the tax consultant, collaborated on selecting products to present to customers, and, in certain cases, directed analyses designed to model potential investment returns.
FINRA also found that Wang failed to update his disclosures as compensation increased and falsely certified on annual compliance questionnaires that he had fully and accurately disclosed all outside business activities to his firm.
As a result, FINRA concluded that Wang violated its rules governing outside business activity disclosures as well as FINRA Rule 2010, which requires brokers to observe high standards of commercial honor and just and equitable principles of trade.
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