FINRA Fines Two Firms; Files Complaint Against Another

WASHINGTON — The Financial Industry Regulatory Authority ordered two firms to pay a total of $100,000 in fines for violations of municipal security and other rules, the self-regulator announced Tuesday.

The agency also filed a formal complaint against another firm in March, charging it with violations of fair pricing, reporting and other muni rules, according to FINRA’s latest monthly report of disciplinary actions.

The fines included an $80,000 penalty against Oklahoma City-based Baker Group LP, which FINRA said violated a number of Municipal Security Rulemaking Board, Securities and Exchange Commission and FINRA rules, including the MSRB’s Rule G-32 on primary offering disclosures.

The firm paid the fine without admitting or denying agency’s findings.

FINRA said that on eight occasions between July and September 2010, Baker Group failed to deliver official statements to customers by the settlement date of the transaction, as required by G-32. FINRA said Baker Group delivered the disclosures up to 14 days late.

In addition, FINRA said Baker Group violated Rule G-14 on reports of sales or purchases. Between August 2008 and October 2010, the firm reported 95 muni transactions without a special condition indicator. In 2010, Baker Group incorrectly coded more than 220 step-out trades with its clearing house or contra-party.

The firm also violated Rule G-27 on supervision and Rule G-9 on preservation of records, according to FINRA. Between August 2008 and October 2010, Baker Group failed to have adequate supervisory procedures to ensure it delivered official statements on time and to prevent deleted staff emails and internal instant messages.

The firm, which did not respond to a request for comment, also violated NASD conduct rules and SEC rules on electronic communications, FINRA said.

FINRA said New York City-based Legend Securities Inc. failed to report hundreds of muni transactions within 15 minutes to the MSRB’s Real-Time Transaction Reporting System. Sixty-four of the transactions occurred between July and September 2009, constituting 17% of the firm’s transactions reported during the period. The remainder, 596 transactions, occurred between April and June of 2010, representing 14% of transactions, FINRA said.

The firm also failed to enforce supervisory rules, according to the self-regulator.

Legend, which neither admitted or denied FINRA’s findings, agreed to pay $12,500 for violations of Rule G-14 and $7,500 for G-27 violations.

FINRA also filed a complaint on March 14 alleging that Bronxville, N.Y.-based KJM Securities Inc. charged excessive prices on muni bond trades, violating rules G-30 on prices and commissions and G-17 on fair dealing. It declined to comment.

Between November 2008 and December 2009, KJM charged markups between 3.15% to 4.99% on 26 muni transactions, and markdowns of 3.05% and 3.55% on two transactions. FINRA said the spreads were “not fair and reasonable.”

The self-regulator also said KJM violated Rule G-27 for failing to have adequate supervisory systems, and G-41, which requires dealers to have an anti-money-laundering programs.

From August 2006 to December 2009, KJM failed to review information requests from the Treasury Department’s financial crimes enforcement network. KJM’s 2008 and 2009 money-laundering compliance tests were, “at best, cursory in nature,” FINRA said.

Further, annual income from muni bond transactions were improperly reported in the firms’ financial and operational combined uniform single report, violating FINRA and Securities Exchange Act reporting rules, according to the complaint. KJM earned $75,069 from muni transactions in 2008, but reported zero.

The complaint asked a hearing panel order KJM to disgorge ill-gotten gains and pay restitution.

A FINRA spokesperson declined to say if KJM responded to the complaint within the 25-day response period, noting that these details are not made public. A hearing officer can issue a decision if the firm does not respond.

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