The Financial Industry Regulatory Authority censured and fined four firms a total of $175,500 for municipal and other rule violations, including $55,000 against Morgan Stanley for failing to report municipal and corporate securities transactions in a timely manner.
Besides the fine for Morgan Stanley, sanctions announced yesterday by FINRA in its monthly disciplinary actions also were imposed on Wadsworth Investment Co. in Wallingford, Conn., Cumberland Brokerage Corp. in Philadelphia, and Tocqueville Securities LP in New York.
Officials at the four firms neither admitted nor denied FINRA’s findings. They either declined to comment or could not be reached for comment.
In the case involving Morgan Stanley, FINRA found that from April 1 through June 30, 2007, the firm failed to report in a timely manner information regarding 1,167 muni transactions to the Municipal Securities Rulemaking Board’s Real-time Transaction Reporting System, representing about 4% of the 32,630 transactions the firm was required to transmit to RTRS during that period.
FINRA also found that from Jan. 1 through March 31, 2008, Morgan Stanley failed to timely report information regarding 1,097 transactions, representing about 3% of the 35,690 transactions that were executed during that period.
The MSRB’s Rule G-14 on real-time transaction reporting generally requires trades to be reported within 15 minutes of execution.
Of the $55,000 fine, $12,500 was related to the muni reporting violations, while the balance was for multiple reporting violations for corporate debt.
It was the second straight month that FINRA has announced fines against Morgan Stanley. Last month, the self-regulator fined the firm $90,000 for buying and selling corporate and municipal bonds at unfair and unreasonable prices in 2003. As part of its acceptance of FINRA’s findings, the firm agreed to also pay $40,606 in restitution to its customers, of which $5,858 was paid to customers involved in three muni transactions.
FINRA also announced yesterday that it had reached a settlement with Wadsworth Investment, under which the firm agreed to pay $100,000 for violations of federal securities laws as well as FINRA and MSRB rules. William Frederick Wadsworth, the firm’s principal, is jointly and severally responsible for $77,250 of the $100,000 fine, FINRA said.
The firm, which is required to hire an independent consultant to review its policies, systems, procedures and training, was suspended from associating from any other FINRA firm for a month ending tomorrow and from any other FINRA firm in a principal capacity through Oct. 18, 2010.
Among numerous securities law and rules violations, the firm failed to report municipal securities trades to the MSRB, FINRA said.
Specifically, from Sept. 23, 2002, through Aug. 10, 2006, it failed to report 19 muni trades to the board, in violation of rules G-2 on professional qualifications, G-8 on books and records, G-14, and G-27 on supervision.
FINRA also found that William Wadsworth violated Rule G-27.
Meanwhile, FINRA fined Cumberland Brokerage $10,500 and ordered it to pay $14,679.57, plus interest, in restitution to customers, for buying or selling munis at prices that were not fair and reasonable in violation of Rule G-17 on fair dealing and G-30 on prices and commissions.
Documents released by FINRA show 18 muni transactions between Jan. 1, 2003, through March 31, 2005, in which the firm bought or sold securities at unfair prices, all but one of which was marked up or down at least 5%. There is no “bright line” percentage increase or decrease for determining excessive markups or markdowns.
FINRA also fined Tocqueville Securities $10,000 for failing to report municipal securities to the MSRB within 15 minutes.
From April 1 through June 30, 2008, the firm failed to report information regarding 49 muni transactions, constituting about 10% of its RTRS-eligible transactions during that period.
During the same period, FINRA said Tocqueville’s supervisory system did not provide for supervision “reasonably designed” to comply with the MSRB’s Rule G-27.
