WASHINGTON — The Financial Industry Regulatory Authority fined seven firms a total of $362,500 for violations of municipal securities rules.
Many of the cases, which emerged amid an ongoing FINRA “sweep” into retail sales practices, stemmed from the firms’ failure to provide official statements for new muni bonds to customers by the settlement date.
In June 2009, FINRA launched a broad sweep, focusing on sales and supervisory practices for muni-bond retail customers, including disclosure practices. Three firms were sanctioned a total of $37,500 for reporting violations related to trading municipal securities.
All of the firms accepted FINRA’s sanctions without admitting or denying its findings.
Specifically, FINRA fined New York-based Oppenheimer & Co. $100,000 for, at various times between Jan. 1 and March 31, 2009, failing to deliver official statements by the settlement dates to numerous customers who purchased new muni securities, in violation of the Muncipal Securities Rulemaking Board’s Rule G-32.
The firm also failed to keep a record of delivering official statements to customers, did not enforce its written supervisory procedures about delivering such statements, and failed to maintain records to demonstrate its compliance, in violation of Rules G-8 and G-27.
The self-regulator fined Boca Raton-based FMSbonds Inc. $100,000 for failing to deliver official statements by the settlement dates to customers who purchased new muni securities from July 1, 2007, through May 31, 2009.
FINRA found FMSbonds had violated Rule G-32.
The firm also failed to keep required records of such deliveries and failed to adopt, maintain and enforce written supervisory procedures about such delivery, violating Rules G-8 and G-27.
In a letter to FINRA dated March 24, Matthew Guerrise, FMSbonds’ senior vice president and chief compliance officer, said the firm’s website displays official statements and features a link to the MSRB’s Electronic Municipal Market Access online platform.
In an interview, FMSbonds president James Klotz declined to comment other than to say the firm’s website displayed official statements during the time period covered by the FINRA action.
Rule G-32 requires a broker-dealer to provide the customer with a copy of the official statement or a notice advising the customer how to obtain the official statement on EMMA.
Similarly, the self-regulator fined Philadelphia-based Janney Montgomery Scott LLC $75,000 for, at various times between January and December 2009, failing to deliver official statements to new muni bond customers by the settlement date.
FINRA also found that the firm failed to document delivery of any such disclosure and failed to enforce written supervisory procedures, violating G-8 and G-27.
Specifically, FINRA said Janney hired a third-party service provider to deliver official statements to customers, but the firm failed to review the service provider adequately and “in certain instances” failed to confirm timely delivery of the statements.
A spokeswoman for Janney, Karen Shakoske, said the firm had implemented “enhanced policies and procedures” since discovering the conduct.
The self-regulator also fined the Livingston, N.J.-based GMS Group LLC $50,000 for, at various times between May 8 and May 24, 2008, failing to deliver official statements to new muni-issue customers, in violation of G-32.
FINRA also found the firm failed to enforce its written supervisory procedures about such delivery, violating G-17 and G-27.
Oppenheimer and the GMS Group did not respond to requests for comment.
Separately, FINRA fined Morgan Stanley $20,000 for failing, from Jan. 1 to March 31, 2009, to report 732 muni securities transactions to Real-Time Transaction Reporting System within 15 minutes of the trade, in violation of G-14.
The self-regulator also found the firm violated G-14 by not reporting the correct execution time to RTRS for the trades and for not showing the correct execution time in trade memorandums for the transactions, in violation of G-8.
The 732 transactions constituted 2.1% of those the firm reported to RTRS during that period.
Morgan Stanley did not respond to a request for comment.
In addition, FINRA fined Banc of America Securities LLC, now Bank of America Merrill Lynch, $5,000 for failing, between Jan. 1 and March 31, 2009, to report 560 municipal securities transactions to RTRS within 15 minutes of the trade, in violation of Rule G-14. The 560 transactions were 2% of those the firm reported to RTRS during that period.
A spokesman for the firm declined to comment.
The self-regulator also fined Palm Beach Gardens, Fla.-based Kiley Partners Inc. $12,500 for reporting 63 of 282, or 22%, of its muni transactions late to the MSRB. FINRA also found that Kiley reported 14 muni transactions erroneously to the board. The conduct, from April 1, 2008, to June 30, 2010, violated G-14.
Michael Kiley, Kiley’s chief executive officer, said the firm switched clearing firms last fall to boost trade-reporting compliance.
