FINRA fined California firm Integral Financial, LLC and its Chief Compliance Officer (CCO), direct owner, founder and President Weiming "Frank" Ho for engaging in an ongoing pattern of using non-compliant public information in order to promote complex investment products in Chinese, despite previous warnings from FINRA not to do so. FINRA also cited Integral Financial for inadequate supervisory systems.
FINRA noted that Integral Financial's customer base is predominantly Chinese-American, which is reflected by the finding that Integral Financial's non-compliant communications were largely in Chinese and English or in Chinese alone.
According to the investigation, Integral Financial engaged in over 50 instances of forbidden public communications, including seminars, radio and television advertisements, print (newspaper/magazine) advertisements, electronic communications including solicited and unsolicited e-mails, and posts to the firm's website. The misconduct allegedly occurred over the course of a four-year period beginning October 27, 2009. The investigators' timeline concluded in August 2013.
The alleged violations pertained to advertising rules: namely that Integral Financial failed to follow FINRA rules for advertising. For instance, Ho's group allegedly promoted the complex structured products known as steepeners, which are linked to the spread between shorter and longer-term interest rates and are often associated with relatively high initial fixed interest rates. Principal protection is additionally a common feature of such products. One notable risk with steepeners, for instance, occurs after the initial period, when fixed rates generally convert to floating rates that can change as the steepness of the yield curve changes, resulting in increased or decreased yields. A secondary market may or may not exist and, if so, may be illiquid. Steepeners are often callable investments and are complex in that they sometimes contain embedded derivative properties that can be difficult for average investors to understand.
Because of the complex nature of steepeners, FINRA implemented advertising regulations for the these products designed to protect the average consumer; the investigation states that Integral Financial violated these rules approximately 50 times, in part, because the firm's supervisory and approval procedures for advertisements were inadequate.
Bilingual investigators found that Ho drafted advertisements in both mixed and Chinese language-only forms and that while he discussed the risks/disclaimers in the Chinese/English advertisements, the relevant Chinese-only communications lacked this reference or disclaimer of risk. After FINRA staff discovered the violations and advised Integral Financial these advertisements were misleading, the firm pulled its radio, television and newspaper advertisements in 2011.
However, the firm continued publishing the non-compliant public communications electronically on its website and through other forms of electronic communication through August 2013. Investigators determined that as CCO, Ho internally approved these later non-compliant electronic communications, even though FINRA simultaneously advised the firm that certain communications were misleading or otherwise in violation of advertisement policy. Enforcement concluded that Integral Financial failed to incorporate FINRA's feedback into its public communications because the firm's practice was to publish their communications without first waiting for FINRA's Review Letters, which meant that non-compliant communications were routinely disseminated before FINRA had a chance to review them.
Upon further review, FINRA determined that Integral Financial's written supervisory procedures (WSPs) were likewise deficient in that the firm failed to implement their own WSPs regarding public communications. The WSPs stated, in part, "Communications must be fair and balanced and must not be misleading, omit material facts or contain inaccurate statements." Investigators found that nobody within the firm monitored Integral Financial's ancillary website and that the firm failed to file certain webpages with Advertising Regulation, as required by FINRA rules.
If you have invested with Integral Financial, Weiming "Frank" Ho or with any other broker or firm whose Chinese or other language publications have been misleading, failed to disclose risks or otherwise omit material facts and these failures or omissions have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.