FINRA Fines to Two Firms for Municipal Securities Rules Violations

The Financial Industry Regulatory Authority fined two firms $95,000 for municipal and other securities rules violations, including $80,000 against Woodbury, N.Y.-based EKN Financial Services Co., partly for failing to maintain adequate records for municipal and other securities.

FINRA announced the fines in monthly disciplinary actions released yesterday. The self-regulator also fined Monument, Colo.-basedAdvisors Asset Management Inc.$15,000 because it bought or sold municipals securities at unfair and unreasonable prices for its accounts and also had faulty supervisory procedures. Prior to January, the firm was known as Fixed Income SecuritiesLP.

In eight transactions between July 1, 2003, and March 31, 2004, Advisors Asset Management purchased municipal securities for its own account from a customer or sold municipal securities for its own account with excessive or unfair commissions and markups, FINRA said, in violation of the Municipal Securities Rulemaking Board's Rule G-30 on prices and commissions.

During the same period, Advisors Asset Management's supervisory system was inadequate, in violation of the MSRB's Rule G-27 on supervision, FINRA added, noting that it did not have written procedures for identifying the people responsible for supervision, as well as a statement of the supervisory steps to be taken by such people. FINRA fined the firm $10,000 for the fair pricing violations, $5,000 for the supervisory violations, and required it to make restitution of $1,038.64 to its customers.

Michael Dudley, the firm's chief compliance officer, said: "Certainly we respect the powerful systems in place to check for these problems, but we feel the facts suggest the firm has a good handle on its bond business."

He noted that there were only eight problematic trades out of 54,000 during the period of review, and that the unfair commissions or markups amounted to just slightly more than $1,000 tied to about 20 bonds with a principal amount of $140,000.

Nonetheless, in a corrective action statement, the firm said it takes the matter seriously and in 2005 hired Dudley, who worked at the National Association of Securities Dealers, one of FINRA's two predecessor groups, for eight years.

Meanwhile, FINRA found that between February and October 2005, EKN violated MSRB Rule G-8 on books and records by failing to preserve and maintain written incoming and outgoing correspondence in an accessible place. However, the bulk of the $80,000 fine against the firm relates to numerous other violations tied to FINRA's code of conduct and Securities and Exchange Commission rules that happened over a roughly three year period beginning in October 2003.

Officials at EKN could not be reached for comment.

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