The Financial Industry Regulatory Authority fined an Atlanta-based securities firm $40,000 for failing to record private securities transactions and failing to report municipal securities transactions in a timely manner, the self-regulator announced yesterday.
FINRA suspended MidSouth Capital Inc. from approving any private securities transactions involving a hedge fund or a private investment partnership formed or managed by the firm’s employees for six months beginning Dec. 3, 2007. It also suspended Mark David Hill, the firm’s chairman and chief executive officer, from associating with any FINRA member for a 20-day period that also began last month.
Both Hill and the firm are responsible for $25,000 of the total fine, FINRA said. Hill could not be reached yesterday for comment.
FINRA also charged the firm violated the Municipal Securities Rulemaking Board’s Rule G-14 on real-time transaction reporting, which requires dealers to report most transactions within 15 minutes of executing them, as well as Rule G-27 on supervision.
Specifically, during November 2005 and January and March of 2006, MidSouth failed to report on a timely basis 75 of 119 municipal securities transactions. Also during those months the firm failed to adopt, maintain, and enforce written supervisory procedures that are required by Rule G-27, FINRA said.
FINRA also found that MidSouth and Hill failed to supervise the sales of an investment fund started by an employee, Scott M. Zimmerman. The fund, called Get Long, was operated as a private partnership managed by Zimmerman and boasted at least $2.2 million in assets by the beginning of 2003. But the fund suffered “substantial losses” by February 2005 when its assets dropped to $400,000.
FINRA found that Hill, acting as Zimmerman’s direct supervisor, failed to review the subscription agreements, monthly statements, or newsletters provided by Zimmerman to his fund’s customers, except to check the customer information to ensure that it was consistent with MidSouth’s records. Such acts violated the self-regulator’s conduct rules, FINRA said.
The firm neither admitted or denied the charges. In a corrective action statement dated Oct. 22, Hill said the firm separated the operations manager and compliance officer jobs into two positions and hired a new chief compliance officer. In addition, the firm “removed” a supervising principal and reassigned his representatives. It also released new written supervisory procedures and increased attention to and frequency of training the company’s supervisors and staff, Hill said.
