FINRA Imposes $115,000 Fine on Spartan Capital Securities Over Compliance Failures

Introduction

Spartan Capital Securities, LLC, a brokerage firm, has agreed to a settlement with the Financial Industry Regulatory Authority (FINRA), which includes a fine of $115,000, a censure, and the requirement to retain an independent consultant. This resolution follows a series of compliance failures by Spartan Capital in response to regulatory inquiries and inadequate supervision of its compliance processes. The penalty underscores FINRA's strict stance on timely responses to regulatory requests and effective supervisory systems within member firms.

Background of the Compliance Issue

The core of Spartan Capital's non-compliance centers on repeated delays in responding to FINRA's inquiries. Between June 2021 and August 2023, Spartan failed to respond promptly to three separate requests issued under FINRA Rule 8210, which mandates firms to provide requested information to assist in regulatory examinations. Spartans repeated delays led to four follow-up requests and three expedited proceedings to enforce compliance, ultimately resulting in violations of FINRA Rules 8210 and 2010, which require ethical conduct and cooperation with regulatory inquiries.

Details of the Examination and Delayed Responses

FINRA's examination in 2022 scrutinized Spartans net capital calculations, including how the firm accounted for non-allowable assets, such as non-cash compensation. On February 2, 2022, FINRA issued a Rule 8210 request for documents needed to assess these calculations. Despite receiving three extensions, Spartan missed all deadlines, ultimately prompting FINRA to initiate an expedited proceeding under Rule 9552 to suspend Spartan's membership.

Just one day before the suspension, Spartan provided an incomplete response, leaving critical items—records of non-cash compensation payments and documents for a specific net capital transaction—outstanding. Although Spartan later completed its response on August 8, 2022, this prolonged delay hindered FINRA's regulatory efforts and led to further disciplinary action.

Failures in Supervision and Compliance

In addition to failing to meet deadlines, Spartan Capital demonstrated inadequate supervisory oversight for handling regulatory requests. According to FINRA, the firm lacked a reasonable system to track deadlines for Rule 8210 requests and did not adequately train its compliance staff to handle such inquiries effectively. Despite undergoing three expedited proceedings within two years, Spartan did not take sufficient measures to improve its supervisory system.

As a result, Spartan was found to be in violation of FINRA Rules 3110(a) and 2010, which require firms to establish and maintain supervisory systems to ensure compliance with regulatory obligations.

Consequences and FINRAs Requirements for Spartan Capital

Beyond the $115,000 fine, Spartan Capital agreed to additional disciplinary actions:

• Censure: A formal disciplinary record of Spartan's non-compliance.
• Independent Consultant: To improve its compliance practices, Spartan is required to hire an independent consultant who will assess and recommend enhancements to the firms supervisory and compliance processes, particularly in areas related to timely responses to regulatory requests.

Conclusion

This enforcement action highlights FINRA's commitment to holding member firms accountable for regulatory compliance and robust supervisory systems. Timely responses to FINRA Rule 8210 requests are essential to maintaining transparency and integrity in financial markets. This settlement serves as a reminder to firms of the importance of timely cooperation with regulatory authorities and maintaining a well-trained, adequately staffed compliance department.