WASHINGTON — The Financial Industry Regulatory Authority has fined five firms a total of $100,000 for violating municipal securities rules, including $40,000 against TD Ameritrade Inc. for failing to disclose negative rating changes for municipal bonds.
The sanctions were disclosed in FINRA’s report of monthly disciplinary actions.
FINRA said that between January and March 2009, Bellevue, Neb.-based TD Ameritrade violated the Municipal Securities Rulemaking Board’s G-17 fair-dealing rule for failing to tell customers about negative rating changes on municipal bonds they were about to purchase. FINRA said the firm failed to disclose rating changes on 16 transactions.
TD Ameritrade agreed to pay $40,000 in fines without admitting or denying the charges, according to the company’s Letter of Acceptance, Waiver, and Consent, filed with FINRA in December.
TD spokesperson Kim Hillyer said the complaint followed a “sweep” by FINRA of a number of firms a few years ago. She said FINRA sent a questionnaire to TD Ameritrade requesting information about bond transactions and disclosures procedures.
Hillyer did not comment on specifics of the complaint, but noted that FINRA did not cite TD Ameritrade for failing to supervise or for inadequate disclosure procedures.
MSRB’s G-17 fair-dealing rule requires dealers to disclose “all material facts” to customers “at or prior to the sale” of the securities, according to the board’s guidance on the rule. The guidance says ratings and rating changes are considered to be material.
“In general, information is considered ‘material’ if there is a substantial likelihood that its disclosure would have been considered important or significant by a reasonable investor,” the MSRB said in the guidance.
Hillyer said complying with the rule can be difficult because firms rely on third-party sources for information about credit changes, and those sources aren’t always up to date. She said TD Ameritrade uses the MSRB’s EMMA system.
“We don’t want to diminish the importance of making sure clients get information, but the ability of firms to get that information … is still very difficult,” Hillyer said. “We rely on systems like EMMA, and that information is only as good as the information reported by municipalities.”
But the MSRB’s guidance on G-17 says material information includes ratings of the issuer “if known to the dealer or if reasonably available from established industry sources.”
In addition to TD Ameritrade, FINRA fined four other firms. Those firms also neither admitted nor denied the findings, and their officials did not return calls for comment.
FINRA censured New York City-based Tradition Asiel Securities Inc. and fined it $17,500 for reporting inaccurate trade times and for failing to report transactions to the MSRB’s Real-Time Transaction Reporting System within 15 minutes of execution.
Seattle-based National Securities Corp. also failed to report municipal securities transactions to RTRS within the 15-minute timeframe, FINRA said. The agency fined the firm $7,500.
Crowell, Weedon & Co., a Los Angeles firm, was fined $30,000 for failing to report municipal securities transactions within 15 minutes in 2008 and 2009.
FINRA censured and fined San Francisco-based Merriman Capital Inc. $5,000 for failing to test its municipal security, underwriting, and market-making supervisory procedures for 2007 and 2008.
The authority also barred Pittsburgh-based general securities representative Daniel Bull from the securities markets.
Bull defrauded 12 investors out of more than $491,000 between December 2009 and February 2011, according to FINRA.
The authority said Bull’s clients believed they were investing in mutual funds and municipal bonds through Venture Advisors, a company started by Bull and two partners.
In reality, FINRA said, Bull funneled clients’ funds to himself after depositing them in a separate account under the name “Venture Advisory Associates.”
FINRA said Bull covered up the fraud by providing investors with false account statements.
