Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker David Kyi (Kyi), previously associated with Sogotrade, Inc., has at least one disclosable event. These events include one tax lien, alleging that Kyi recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on December 17, 2024.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (‘Exchange Act’) against David Chong Kyi (‘Respondent’ or ‘Kyi’). \<char_lb_r>\, \<char_lb_r>\, The Commission finds that from at least May 2019 through October 2023 (the ‘Relevant Period’), SogoTrade, Inc. (‘SogoTrade’), a registered broker-dealer, failed to file Suspicious Activity Reports (‘SARs’) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (‘FinCEN’) when it knew, suspected, or had reason to suspect that its customers were facilitating illegal activity or engaging in activity with no business or apparent lawful purpose. Due to deficiencies in SogoTrade’s design and implementation of its Anti-Money Laundering (‘AML’) policies and procedures, SogoTrade repeatedly failed to investigate its customers’ engagement in suspicious activity and to file SARs when required. SogoTrade also failed to follow its written identity verification process and therefore failed to document accurately the procedures set forth in its Customer Identification Program (‘CIP’). \<char_lb_r>\, \<char_lb_r>\, At all relevant times, Kyi was SogoTrade’s AML Compliance Officer (‘AMLCO’), was primarily responsible for the design and implementation of SogoTrade’s AML program, and, until the firm’s establishment of a SAR Committee in December 2021, was solely responsible for deciding whether SogoTrade would investigate suspicious activity and whether it would file SARs. On numerous occasions, Kyi failed to investigate suspicious activity and failed to file SARs concerning suspicious activity that SogoTrade systems or personnel, or employees of SogoTrade’s clearing firm, brought to his attention. When Kyi did investigate suspicious activity, he applied an inappropriate standard to determine whether to file a SAR-whether the customer had in fact engaged in fraud or other illegal activity-rather than the standard laid out in the Bank Secrecy Act (‘BSA’) and implementing regulations. Kyi also had a practice of alerting customers that SogoTrade’s surveillance reports had identified their suspicious trading activity and would advise or direct employees to advise customers to keep their trading activities below the average daily volume threshold to avoid triggering firm review. Furthermore, Kyi failed to consistently and comprehensively review the firm’s AML surveillance reports. In addition, year-after-year during the Relevant Period, although it was his responsibility to do so under SogoTrade’s WSPs, Kyi failed to implement the firm’s independent AML auditor’s key recommendations to strengthen SogoTrade’s processes related to monitoring and investigation of suspicious activity. Finally, despite being responsible for implementing the firm’s AML WSPs, including its CIP, Kyi also failed to help ensure that SogoTrade adhered to its CIP procedures, which resulted in the firm’s failure to accurately document its CIP procedures.
Under the securities laws brokers are obligated to act in their clients’ best interests and provide only suitable recommendations for investments to the client. In addition, the SEC has promulgated ‘Regulation Best Interest (Reg BI)‘ which according to the SEC enhanced the broker-dealer standard of conduct beyond existing suitability obligations and requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. Regulation Best Interest and the fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest.
Brokers have an obligation to first obtain and evaluate sufficient information about a retail investor to form a reasonable basis to believe the account recommendations are in the retail investor’s best interest. Recommendations cannot be based on materially inaccurate or incomplete information. Every recommendation’s cost and investor details are essential parts of material information. Types of costs that must be considered including account fees, commissions and transaction costs, tax considerations, as well as indirect costs.
In addition to obligation to understand the customer the broker must also investigate the product being sold. FINRA firms have an obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. A brokerage firm has a special relationship with a customer from the fact that in recommending the security, the broker represents to the customer that a reasonable investigation has been made. So, a brokerage firm should not depend solely on information from the issuer regarding a company, but must perform its own thorough investigation.
Another protective measure for investors is to mandate broker discloses. Brokers are required to disclose reportable events such as customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters on FINRA’s BrokerCheck reports for public viewing. FINRA has recognized that recent research shows brokers with a past record of regulatory or customer complaint issues are more likely to have such problems again in the future. FINRA’s Office of the Chief Economist (OCE) published a study showing the predictability of disciplinary and disclosure events based on past similar events. The OCE study showed that past disclosure events, including regulatory actions, customer arbitrations and litigations of brokers, have significant power to predict future investor harm. The data shows that where a member firm on-boards brokers with a significant history of misconduct there is a high likelihood that the broker will continue to engage in similar behavior.
Kyi has been in the securities industry for more than 27 years. Kyi has been registered as a Broker with Sogotrade, Inc. since 2011.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.
