RBC Capital Markets LLC was fined $95,000 and ordered to pay almost $33,000 in restitution to investors for unfair pricing of municipal bonds, the Financial Industry Regulatory Authority reported Monday.
Six other firms were fined a total of $160,000 for violating rules by failing to send timely official statements to investors, not filing timely or accurate trade data, unfair pricing, and failing to have adequate supervisory provisions, according to FINRA.
The offenders and their fines were New York City-based Rice Financial Products Co., $50,000; Longview, Wash.-based Continental Investors Services Inc., $35,000; Milwaukee-based M&I Financial Advisors Inc., $27,500; Memphis-based Carty & Co., $25,000; San Francisco-based Grigsby & Associates Inc., $12,500; and Youngstown, Ohio-based WRP Investments Inc., $10,000.
The cases were detailed in FINRA’s monthly disciplinary actions. The firms involved neither admitted or denied the self-regulator’s findings, but agreed to the sanctions.
The authority said RBC, during the first quarter of 2008 in 26 transactions, either bought munis for or sold them to its own account and charged customers aggregate prices that were not fair and reasonable.
The judgment took into consideration all relevant factors, according to FINRA, including the broker’s best judgment of the fair-market value of the securities, any related securities exchanged or traded, the expense involved, and the fact that the broker-dealer is entitled to a profit.
FINRA said RBC also engaged in unfair pricing in 14 transactions during the fourth quarter of 2008. The conduct violated Municipal Securities Rulemaking Board Rules G-17 on fair dealing and G-30 on prices and commissions, according to FINRA.
A spokesman for RBC said the firm had no comment.
Rice Financial, from Jan. 1, 2007, through July 15, 2009, failed to deliver official statements by the settlement date to numerous customers who purchased new-issue munis and could not provide evidence that it delivered final OS’ to those customers, according to FINRA.
At various times the firm also failed to keep a record of deliveries of official statements to customers and did not adopt, maintain and enforce written supervisory procedures reasonably designed to ensure compliance with the related rules.
As a result, it violated Rule G-32 on disclosure in connection with primary offerings, Rule G-8 on recordkeeping and Rule G-27 on supervision, FINRA said.
G-32 requires broker-dealers selling new municipal bonds to deliver a copy of the official statement to customers on or before the settlement date. Beginning on June 1, 2009, firms could satisfy the delivery requirement by notifying customers how to obtain a copy of the OS electronically. Rice had contracted with a third-party vendor to deliver the statements but failed to keep proper records and the firm did not review its activities, FINRA said.
The authority said Continental also sold muni securities for its own account to a customer at unfair prices, taking into account all relevant factors in violation of Rules G-17, G-27 and G-30.
The firm paid almost $14,648 in restitution to the customer. Continental issued a corrective action statement saying it is hiring a new chief compliance officer and submitted revised muni pricing and supervisory procedures to FINRA for review.
M&I Financial failed to report accurate data for 29 muni securities agency transactions in August through September of 2009 and in January through July of 2010, FINRA said. It also failed to report correct data for 21 of 93 principal municipal trades during those periods and lacked appropriate supervisory procedures, violating Rules G-14 on trade reporting and G-27, according to the self-regulator.
The firm submitted a corrective action statement, saying it had proposed changes to its trade reporting process.
Carty also failed to deliver official statements by the settlement date to customers who purchased new muni bonds and failed to adopt or maintain adequate written supervisory procedures, in violation of G-32 and G-27, FINRA said.
The firm said it has changed its OS delivery procedures. But Bill Carty, the firm’s chairman, said he thinks the MSRB interpreted the rule improperly. Carty was not in the underwriting syndicate or selling group.
Carty’s reading of the rule is that if all the bonds are sold at the end of the underwriting period, it no longer applies, he said.
“I think we could have probably won at a hearing ... but it would have been expensive,” the chairman said.
FINRA said Grigsby and WRP Investments failed to report timely or accurate data for trades and failed to have adequate supervisory procedures in violation of Rules G-14 and G-27.
Besides RBC and Carty, other firm officials could not be reached, or declined to comment.
