Webull Financial Fined $3 Million – Failure to Exercise Due Diligence When Approving Option Traders

Webull Financial Fined $3 Million – Failure to Exercise Due Diligence When Approving Option Traders

Webull Financial Fined $3 Million – Failure to Exercise Due Diligence When Approving Option Traders 150 150 Robert Rex, Esq.

Webull Financial LLC Investigation

March  2023 – New York

According to publicly obtained regulatory records, Webull Financial LLC , a FINRA registered broker dealer that offers low cost, self directed trading to customers was recently sanctioned for failing to exercise reasonable due diligence before approving customer to trade options.

The Financial Industry Regulatory Authority (FINRA) is the agency that licenses and regulates stockbrokers and brokerage firms. FINRA requires brokers and brokerage firms to report customer complaints and disputes as well as regulatory sanctions. In addition brokers are required to disclose certain financial matters such as personal bankruptcies, judgments and liens.

According to the Letter of Acceptance, Waiver and Consent No. 2021070581 401 executed by Webull Financial with FINRA, Webull’s system for approving or disapproving customer accounts was flawed, resulting in customers being approved for options trading who did not satisfy the firm’s eligibility criteria or whose accounts contained red flags that options trading was potentially inappropriate for them. Findings made by FINRA include:

  • The firm approved customers for options trading without sufficient due diligence. FINRA rules require firms to ascertain the essential facts relative to the customer including age, income, net worth, investment objectives and investment experience and knowledge. This information is required to be be reviewed by a qualified principal at the firm who is then to consider the information before approving or disapproving accounts for options trading. FINRA found that Webull’s system did not consider information available to the firm, did not reasonably review its automated system for approving customers and approved customers for options trading whose accounts contained red flags that options trading was no appropriate for them.

As examples of failed or inadequate reviews, FINRA provided the following examples:

  • One customer applied for approval for level 3 options trading authority on his 18th birthday. Consistent with the firm’s eligibility criteria, the firm rejected the customer’s application because he stated at that time that he had between 1-2 years of options trading experience. Only two days later, the firm approved the customer for level 3 options trading authority after he submitted a new application stating that he had more than 5 years of options trading experience.
  • Another customer was 19 years old when he applied for level 3 options trading authority four times between June 4 and June 9, 2021. Consistent with the firm’s eligibility criteria, the firm rejected all four applications because the customer stated that he had 1-2 years of options trading experience. On June 10, 2021, the customer again applied for a level 3 options trading authority, and once again reported having 1-2 years of options trading experience. The firm again rejected the customer’s application. But immediately after that fifth rejection, the customer reapplied to trade options, stating that the customer had more than 5 years of options trading experience. This time, the firm approved his application based on that representation.
  • One customer applied twice, and was rejected twice, for level 3 options trading authority on April 23, 2021, after reporting that he had no options trading experience. The next day, the same customer applied, and was again rejected, to trade level 3 options, after reporting that he had between 1-2 years’ options trading experience. Two days later, on April 26, 2021, the firm approved the customer for level 3 options trading authority after the customer reported that he had more than 5 years’ options trading experience without verifying that the customer in fact had such experience.

Additionally FINRA found that Webull did not establish and maintain a supervisory system reasonably designed to identify and respond to customer complaints and the Webull did not report to FINRA certain customer complaints.

FINRA imposed sanctions on Webull Financial including a censure and a $3,000,000 fine.

Suffer Option Trading Losses at Webull Financial ?

If you suffered losses in an option account at Webull and believe that you were improperly granted option trading privileges ,  contact us for a no charge consultation with an experienced securities attorney to learn about your legal options.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

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