Narrator: Craig, an advisory manager, has a brokerage account
with a broker who gives him specific investment
recommendations from time to time. His account has been activated
for KICS Broker Import and Craig has established protocols
with the broker, first, to use the external link to KICS to check whether the
securities he is recommending are restricted, and second, to call Craig
to get approval to make the trades. A few days ago, the broker
reached out to him with some potential investment recommendations
and said the timing was perfect to buy the securities that day. The broker
told Craig that he searched KICS and could not find any of the
investments. Craig weighed his options. He could do more research to
determine whether each of the investments were permissible, or he could
rely on the broker’s research and take advantage of whatever
was happening in the was happening in the market that day. Not
wanting to miss out on the potential financial gain, and rationalizing
that he only planned to hold the investments for a short
timeframe, Craig gave his broker the go-ahead to make the purchases. Now
he’s received an email from Risk Management – Independence notifying
him that the investments were in restricted entities. He instructs his
broker to sell the restricted entities immediately. He reaches
out to Risk Management - Independence to discuss.
Craig: A few days ago, my broker purchased a few stocks on my behalf
and now I’m receiving an email that they’re restricted. I had the
broker sell them right away. Do I have any issues?
Independence: Before purchasing them, did you check the
restriction status in KICS?
Craig: No, I didn’t check personally, but my broker said he checked
on my behalf and and didn’t find anything in KICS. I gave him the
go-ahead to purchase them because he advised I needed to act
fast and I figured they must not have been restricted if they
weren’t in KICS.
Independence: Not finding an entity in KICS doesn’t necessarily mean
it’s not restricted. You’re required to obtain conclusive evidence that
an entity is not restricted before you purchase it. These purchases will likely
be considered violations and you may incur a financial penalty, even though
you only held them for a short time.
Craig: What more could I have done though? If the broker couldn’t find
them, I probably wouldn’t have found them either.
Independence: Most publicly traded entities can be found in KICS by
searching for their ticker symbol. If there is no ticker symbol, and you
can’t find the entity in KICS using a full or abbreviated name, you
should contact Risk Management - Independence for assistance
in obtaining conclusive evidence.
Craig: That’s helpful guidance. You know, earlier you mentioned this would be a
violation. Even though it was the broker that executed the trade,
will it still be a violation?
Independence: That’s right, it doesn’t matter whether you have someone
investing on your behalf. You’ll be held accountable for all
investments in restricted entities, even if someone else is doing the
trading, and regardless of when they are disposed of. And I’ll also
point out that the same is true if a spouse or a dependent executes
trades in restricted entities.
Craig: I get it. Independence compliance is my responsibility and I really
need to change the way I’ve been thinking about it. I can’t place the
blame on what went wrong on my broker. I’ll make sure I personally check KICS
before I, my immediate family members or my broker make any trades. I don’t
want any more independence violations or financial sanctions. Thinking
that I had to move fast really impaired my judgment.
Narrator: The conversation with Risk Management - Independence
helped Craig identify that he did not act in a manner that upheld his
commitment to the firm’s ethics and compliance obligations.
Although he received pressure from his broker to make a trade that might
result in financial gain, he did not take the necessary steps to ensure his
compliance with the independence rules first. Craig failed to recognize the
potential independence issues, and he did not properly gather and evaluate
all information before making a decision. He realizes now that he should
have consulted with Risk Management - Independence to obtain
conclusive evidence of the entity’s restriction status before giving his
broker the go-ahead to make the investment. Craig now understands
that a change in his behaviors and mindset toward compliance is needed
to uphold his professional responsibilities.