| 23 November 2009

Who said the days of wining and dining were over? Oh, wait. FINRA said it, that's right. And today they reminded Terra Nova Financial Group to button up the kitty. The company was hit with a $400,000 fine for allegedly flubbing $1 million in soft dollar payment programs. Not only that, the firm is accused of stonewalling FINRA and slowing the investigation.

"Terra Nova also failed to timely respond to FINRA's requests for productions of various documents, including emails and instant messages, thus delaying FINRA's investigation," said FINRA in the release. Bit of advice to those of you under investigation right now: don't make it worse than it needs to be.

To be clear, soft dollar payments -- compensation unrelated to the transaction of securities -- aren't totally prohibited. But those payments must be strictly audited and supervised. Susan Merrill, FINRA's Executive Vice President and Chief of Enforcement explains: "Broker-dealers that collect soft dollars and make payments for their hedge fund clients must possess and implement adequate procedures that govern their soft dollar practices.

"Firms must not ignore red flags indicating the potential misuse of soft dollars that are generated from trading commissions. Soft dollars belong to the hedge fund investors and must be used for the benefit of the funds, or as permitted by the fund's own disclosure documents." [Italics gently inserted by us.]

So who's to say lavish strip club soirees don't benefit fund holders? You heard us right. FINRA's investigation turned up seven trips to a "gentelmen's club" by a single hedge fund manager for a total of $13,700. That's nearly $2,000 a visit -- and it all occured in a two-week period. (Which does beg the question whether "soft dollar" payments is the right terminology in this particular case.)

Yes, there's more, but need we go on? You can read it for yourself in the FINRA release. So why write about it here? There's a reason companies like this rarely rise above OTC status and we like to publish these tales as little reminders to our readers. Trust is earned, and so quickly shattered.