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Finra Failure to Supervise Sanctions Upheld

John B. Busacca, III, Exchange Act Rel. 63312, November 12, 2010

Finra found Busacca failed to supervise back office operations at the clearing firm he was president of. Finra also found he permitted the firm to employ an unregistered chief compliance officer. Busacca was suspended for six months as a principal, fined $30,000 and assessed costs of $2,000. The Commission upheld the findings and sanctions on appeal.

Busacca's firm installed new software for use in its back office operations that caused major problems. As a result the firm was repeatedly in violation of various customer protection, record keeping, reporting, and extension of credit rules. In fact, the software caused systematic breakdowns in firm operations. The firm also had young and inexperienced back office personnel. The problems persisted for many months. Instead of focusing on these issues, Busacca spent the bulk of his time marketing for the firm, which exacerbated the back office problems.

Busacca's primary defense was that he was not responsible for the back office and its breakdown. Unfortunately for him, the Commission has for many years taken the position that the president of a firm is responsible for all compliance unless and until she has reasonably delegated a particular function to another and neither knows nor has reason to know that such person is not properly performing her duties. It found that he had ample notice of the serious back office problems at his firm.

The Commission also rejected Busacca's claim that he was subjected to selective prosecution due to Finra staff bias against him. The Commission noted that Finra's investigation was prompted by customer complaints and the charges amply supported by evidence.