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The United States Financial Industries Regulatory Authority (FINRA) has suspended and fined an ex-Merrill Lynch banker, Kyung Soo Kim. The self regulating financial authority has taken the decision to impose a $5,000 fine,and one month suspension on Kim for partaking in a cryptocurrency activity without a proper notice.
Kim allegedly performed a cryptocurrency mining operation in December 2017, right before the Bitcoin price peaked at almost $20,000. Although he has neither confirmed nor denied these allegations, he has submitted a Letter of Acceptance, Waiver and Consent to come to a settlement. During the period of March 20, 2014 to April 10, 2019, he was registered as a GSR (General Securities Representative) and IR (Investment Company and Variable Contracts Products Representative).
He was discharged from Pierce, Fenner and Smith, a banking “member firm” of Merrill Lynch, on the 14th of March, 2019, for, in part, ‘…fail[ing] to disclose an outside business activity.’
Kim’s Crypto Mining was in Violation of FINRA’s Rules
Kim, who has no prior records of disciplinary issues, launched and funded the business entity S Corporation as the sole shareholder and director, to perform cryptocurrency mining; he then entered into a contract with another organization, which was built in order to build and operate the computer hardware and software for S’s cryptocurrency activities.
While this is not necessarily illegal, he should have provided a written notice of this activity to his superiors, which has caused him to pay the price. He was discharged from his role in March last year.
FINRA states that this move was in violation of FINRA Rules 3270 and 2010. Rule 3270 states that “no registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.” Rule 2010 maintains that all employees must observe great standards, and principles of trade. FINRA maintains that if he had declared his business in writing, the incident would have been avoided.
Terms of Settlement for not Properly Disclosing the Bitcoin Mining Operation
Kyung Soo Kim has been discharged from his role. In addition, according to the Letter of AWC he signed, he will be suspended for a month from association with any firm that is a FINRA member, and he also has to pay a $5,000 fine, which would be payable only on re-association with a FINRA firm. FINRA has accepted the terms of this letter, and agreed to reach a settlement, following more than a year of the incident surfacing, and him being discharged.
It is not obvious whether this was merely a lack of oversight or a lack of knowledge on the part of the former GSR, but he has had to pay a heavy price indeed. This has lead to crypto news portals questioning whether the organization frown on crypto involvement by their employees, or if this was merely a case of following the rules.
This comes at a time of major upheaval for crypto transactions, with FATF demanding that crypto transactions above $1,000 have the same reporting regulations as banks. This also throws light on the attention regulators in the United States pay to cryptocurrency related activities, even on small scales. This trend could face a huge change throughout the industry, with new regulatory frameworks in place.