FINRA Fines Piper For Violations

WASHINGTON - The Financial Industry Regulatory Authority has censured and fined Piper Jaffray & Co. $25,000 and forced it to disgorge $260,157 in profits for two municipal securities transactions it helped underwrite in Minnesota during a two-year ban on its business with state issuers that was triggered by political contributions a former vice chairman made to the state's governor, FINRA announced yesterday.

The fine against Piper, which is headquartered in Minneapolis, was disclosed in monthly disciplinary actions that FINRA released yesterday. Including Piper, the self-regulator fined five firms a total of $196,500 for violations of municipal and other rules. FINRA also fined Dallas-based Southwest Securities Inc. $67,500, Troy, Mich.-based Leonard & Co. $65,000, Youngstown, Ohio-based Butler, Wick & Co. $29,000, and St. Louis-based A.G. Edwards & Sons Inc., a division of Wachovia Securities, $10,000. Officials at all of the firms except Piper either declined to comment or did not return phone calls yesterday.

Piper triggered the two-year ban on business with the state of Minnesota and its agencies after Addison "Tad" Piper, its former vice chairman, gave a series of three small contributions to Gov. Tim Pawlenty's 2006 re-election campaign that totaled $450 more than the $250 de minimis amount allowed under the Municipal Securities Rulemaking Board's Rule G-37 on political contributions. FINRA also faulted the firm for failing to adequately monitor the political contributions to ensure compliance with MSRB Rule G-27 on supervision.

Though FINRA did not name Addison Piper, sources indicated yesterday that he was the firm official who made the contributions.

Under G-37, which took effect in April 1994 to prevent muni dealers from engaging in pay-to-play practices, a dealer is banned from engaging in negotiated muni securities business with an issuer for two years if the firm or any of its municipal finance professionals make significant political contributions to an issuer official who can influence the award of bond business. However, the rule contains a de minimis exception under which any muni finance professional can contribute up to $250 to any issuer official for whom he or she can vote.

Piper was a municipal finance professional because he was on the firm's management committee when he made the contributions. He has since retired from the firm.

The former vice chairman made his first contribution, of $200, on May 13, 2005. But he exceeded the $250 de minimis exception on April 19, when he made an additional $250 contribution, which first triggered the firm's two-year ban from business with the state. The firm should have refused to engage in negotiated muni business with the state through April 19, 2007.

A subsequent $250 contribution on July 12, 2005, extended the two-year ban through July 12, 2007.

But on May 26, 2005, Piper helped to underwrite securities issued by a Minnesota agency, for which it received $92,842.36. And on June 22, 2005, it helped underwrite a transaction by another agency, receiving $167,316. FINRA does not identify the issuers, though one appears to be the Minnesota Housing Finance Agency, based on a search on the MSRB's Electronic Municipal Market Access system.

In a corrective action statement, Piper said that the campaign returned the contributions to Addison Piper and that it had enacted an electronic system for keeping track of political contributions, as part of a number of corrective steps it took in late 2006, before it was notified by FINRA staff that it was contemplating an enforcement action against the firm for G-37 and G-27 violations.

FINRA's fine against Piper comes about two years after the self-regulator's National Adjudicatory Council refused to grant it an exemption from G-37's temporary ban.

"We take these matters seriously and are pleased to put it behind us," Piper spokesman Rob Litt said yesterday.

Separately, FINRA fined Southwest Securities $67,500 for failing to report municipal and corporate transactions in a timely manner, as well as for faulty record keeping and supervisory procedures. The MSRB's Rule G-14 on real-time transaction reporting requires dealers to report most muni transactions within 15 minutes of their execution. But between April 1 and June 30, 2005 the firm failed to report information regarding the purchase and sale of 524 muni transactions in a timely manner.

In addition, FINRA said the firm's supervisory procedures did not reasonable ensure compliance with applicable securities laws and regulations, in violation of MSRB Rules G-17 on fair dealing and G-27. FINRA said that only $10,000 of the fine was for muni rule violations and that the rest was tied to corporate securities violations.

FINRA fined the Leonard firm $65,000 for failing to comply with the MSRB's Rule G-8 on record keeping, among other things. Specifically, the firm failed to disclose on order memoranda the time of execution in eight of 17 interdealer transactions, the time of receipt in nine of 17 customer transactions and the time of receipt and the time of execution in eight of 17 customer transactions between Jan. 1 and March 31, 2004.

The self-regulator fined Butler Wick $29,000 for violations of MSRB rules G-27, G-36 on official statements and G-37 between April 1, 2005, and June 30, 2007. FINRA found the firm, in 13 transactions, including one in which it acted as an underwriter for an advance refunding, failed to advance refunding or offering documents and forms in a timely fashion with the MSRB under Rule G-36. After FINRA staff brought the issue to the firm's attention, they filed the documents 108 to 579 days late.

FINRA fined A.G. Edwards $10,000 for violations of G-17 and G-30 on prices and commissions, as well as FINRA rules. Specifically, between January and September 2004, the firm purchased or sold, for its account, five muni securities at an aggregate price that was not fair and reasonable, the self-regulator said.


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