Joseph Stone Capital L.L.C. has agreed to pay a fine of $35,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Joseph Stone failed to comply with FINRA Rule 3170 (the Taping Rule), which requires certain firms to tape record all telephone conversations between their registered persons and existing and potential customers.
On September 27, 2021, Joseph Stone became subject to the requirements of the Taping Rule for a period of three years. Joseph Stone’s special written procedures outlining its system for complying with the Taping Rule and its implementation and enforcement of those procedures were deficient in several respects.
First, the special written procedures provided no time period by which the responsible principals must complete the supervisory reviews.
Further, although the procedures directed that principals pay “attention” for potential sales practice concerns, they did not provide guidance about the steps principals should take upon identifying such concerns.
Second, Joseph Stone failed in certain instances to implement and enforce its special written procedures to ensure that it recorded all telephone conversations between its registered representatives and existing and potential customers.
Despite the special written procedures “apply[ing] to all telephone conversations between registered representatives of the firm and both existing and potential customers,” at various points between September 2021 and May 2022, Joseph Stone failed to record certain customer calls for six of its registered representatives due to human error and technical difficulties.
Moreover, Joseph Stone’s special written procedures allowed registered representatives to use their cell phones to conduct business, but the special written procedures were not reasonably designed to ensure all phone calls between registered representatives and existing and potential customers were recorded. In particular, the firm’s special written procedures required representatives to download a cell phone application that allowed for the recording of conversations with customers.
However, registered representatives were responsible for ensuring their own customer calls were conducted through the cell phone application and Joseph Stone’s special written procedures did not set forth a supervisory process reasonably designed to determine whether registered representatives were recording all required cell phone calls.
Finally, between September 2021 and April 2022, Joseph Stone did not retain call recordings for 18 days during the required three-year period. The firm’s telephone carrier only retained calls for one year and the special written procedures did not provide reasonable guidance on downloading calls prior to their being deleted, including the requency at which such downloads should occur. As a result, the firm failed to retain all call recordings for the required three years.
In late 2024, the firm began implementing enhanced reviews of recorded calls. As of the end of September 2024, the firm was no longer subject to the Taping Rule. However, it has continued to comply with the requirements of the Taping Rule on a voluntary basis for a period of six months ending March 28, 2025.
By failing to establish and maintain reasonable supervisory procedures for taping, Joseph Stone violated FINRA Rules 3170 and 2010.
For these violations, Joseph Stone was censured and fined $35,000.
