WASHINGTON — The Financial Industry Regulatory Authority has fined Oppenheimer & Co. $675,000 for charging customers unfair prices in municipal securities transactions and for failing to have an adequate supervisory system, FINRA announced Monday.
FINRA also ordered Oppenheimer to pay more than $246,000 in restitution, plus interest, to those customers and to take remedial actions.
FINRA fined Oppenheimer’s head municipal securities trader David Sirianni $100,000 and suspended him for 60 days for selling bonds to the firm’s customers at excessive markups. Sirianni also was directed to take remedial actions.
FINRA found that from July 1, 2008, through June 30, 2009, Oppenheimer, through Sirianni, priced 89 customer transactions from 5.01% to 15.57% above the firm’s contemporaneous cost. In 54 of those transactions, the markups exceeded 9.4%.
Oppenheimer had a policy that prohibited markups in excess of 3% except for certain extenuating circumstances, but failed to detect Sirriani’s conduct because he held the bonds at least overnight before unloading them at higher prices, FINRA alleged. The firm’s supervisory personnel relied solely on a surveillance report that only captured intra-day transactions to review the fairness of markups and markdowns.
From at least 2005 through June 30, 2009, if an Oppenheimer trader purchased municipal securities and held those securities in inventory for a day or longer, the subsequent sales to customers would not populate the firm’s surveillance report or be subjected to a fair pricing review.
“Sirianni alone was responsible for determining the prices paid by OPCO’s customers,” FINRA said.
The conduct of Sirriani, who has been registered with FINRA since 1987 and joined Oppenheimer in 2003, violated the Municipal Securities Rulemaking Board’s Rule G-17 on fair dealing and Rule G-30 on prices and commissions, while OPCO got dinged for failing to abide by the board’s Rule G-27 on supervision with its “deficient” oversight, FINRA said.
“FINRA has no tolerance for firms or individuals who charge customers excessive markups,” said Thomas Gira, the self-regulator’s executive vice president and head of market regulation. “Oppenheimer charged customers unfair prices in numerous municipal securities transactions and failed to properly supervise municipal securities transactions with its customers.”
Both Oppenheimer and Sirriani neither admitted nor denied the allegations, but agreed to the entry of FINRA’s findings.
In addition to his fine and suspension Sirriani agreed to attend a class, seminar, or continuing education program at his own expense regarding MSRB Rules G-17 and G-30.
Sirianni will also, on a quarterly basis, inquire with his firm to ensure that the firm has “reasonable and adequate reporting and supervisory procedures” to assure that transactions with a markup in excess of 3% are identified on a daily exception report that is reviewed by the appropriate supervisory personnel within the firm.
Oppenheimer agreed to provide three reports, written and oral, to FINRA six, 12, and 18 months hence, regarding the effectiveness of the firm’s written supervisory procedures with respect to the pricing of municipal securities transactions with customers. The written reports shall be certified by an officer of the firm and shall address, at a minimum, the efficacy of the firm’s written supervisory procedures and the steps taken by supervisory personnel to review for compliance the firm’s fair pricing obligations.
An Oppenheimer spokesman noted that the transactions named in FINRA’s action occurred at the height of the financial crisis and the prices reflected that stress, but added that the firm has “reviewed, and where necessary enhanced” its supervisory practices.
