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Securities Law

Sanctions Top $181K for Seven Firms

FEB 19, 2013 3:59pm ET
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Seven firms and two individuals have agreed to pay a total of $164,500 in fines and nearly $17,000 in restitution for violating trade, price and other rules of the Municipal Securities Rulemaking Board.

The firms and individuals agreed to the sanctions without admitting or denying wrongdoing, according to the Financial Industry Regulatory Authority's monthly disciplinary report, released late last week.

Gardnyr Michael Capital Inc., based in Mobile, Ala., agreed to pay a $30,000 fine and $11,115 in restitution to settle a February 2012 FINRA complaint alleging it charged excessive mark-ups on munis by trading them between company accounts and an account of employee Anthony Grey, violating MSRB's rules G-17 on fair-dealing and G-30 on prices and commissions.

FINRA said the markups were as high as 22.92% by the time the bonds were sold to customers. The self-regulator also said the firm violated MSRB rules G-2 on professional standards, G-3 on qualifications, G-27 on supervision and G-32 on disclosures as well as fraud provisions in the Securities Exchange Act of 1934.

As part of the settlement, GMC executive vice president James Pietkiewicz agreed to a $10,000 fine and accepted a 45 day suspension from associating with FINRA members, sanctions for G-3 and G-27 violations.

In addition, employee other than Grey, whose name was redacted, agreed to pay a $7,500 fine for G-3 violations. That person may be president and chief compliance officer Pfilip Gardnyr Hunt Jr., who has regulatory action pending against him, according to FINRA records.

Grey did not settle, and his administrative proceedings with FINRA continue, said Philip Snyderburn of law firm Snyderburn, Rishoi & Swann, who represents GMC and the individuals.

Last February, Snyderburn denied wrongdoing and said GMC would contest the case.

On Tuesday, he noted that the bonds traded during a tumultuous period, and said the prices were fair and no customers complained.

Still, he said it made sense for the firm and individuals to settle. "As opposed to administrative proceedings, it was better to have it resolved and have the firm put it behind it," Snyderburn said.

FinTech Securities, based in Atlanta, was fined $30,000 for violating rules G-32, G-8 on books and records and G-27.

From November 2010 to October 2011, the firm failed to provide customers with official statements in connection with 89 muni transactions. Also, trade confirmations provided to customers failed to direct them to the MSRB's EMMA system, FINRA said.

The firm also had record-keeping and supervisory failures.

Chicago-based OptionsXpress Inc., agreed to pay $25,000 in fines for violating of rules G-14 on trade reporting and G-27. In 2009 and 2010, the firm did not report the correct destination code in 381 reports to the MSRB's Real-time Transaction Reporting System and failed to report 44 transactions to RTRS within 15 minutes of time of trade, documents say.

FINRA fined Deutsche Bank Securities Inc., based in New York City, $20,000 for filing incorrect trade memoranda and for supervisory failures, violations of rules G-8 and G-27.

From May 2009 to January 2010, the firm did not identify the time of order receipt or time of trade execution on order memoranda for thousands of negotiated municipal debt principal transactions with institutional customers, FINRA said.

RBC Capital Markets LLC was fined $20,000 by FINRA for violating rules G-17 and G-30.

RBC sold traded munis at prices that were not fair and reasonable in eight transactions in the third quarter of 2009 and eight transactions in the first quarter of 2011, said FINRA. Markups on some of those transactions were near 4%, according to FINRA.

Janney Montgomery Scott LLC, based in Philadelphia, also violated rules G-17 and G-30, according to FINRA.

The firm agreed to pay $12,000 in fines and $5,758 in restitution for purchasing munis for its own account in six transactions at prices that were not fair and reasonable in the third quarter of 2009, FINRA said.

FINRA fined Toussaint Capital Partners LLC, based in New York City, $10,000 for failing to report 44 purchase and sale transactions to RTRS within 15 minutes of execution, violations of G-14, and for related violations of G-27's supervisory requirements.

The transactions, which occurred during the second quarter of 2010, accounted for 52% of trades the firm reported to RTRS during the period, FINRA said.

Securities broker Jason Scott Love, formerly with Atlanta, Ga.-based IFS Securities, was barred permanently from associating with any FINRA member for fraudulent activities involving municipal securities, according to FINRA.

Love consented to the finding that from January to May 2012 he induced a customer to write checks totaling roughly $40,000 for the purpose of buying municipal bonds, and then kept the funds for his own personal use FINRA said.

Through his personal email address, Love told the customer to make the checks payable to "IFS," then altered the letters to "Jason Love," said FINRA documents.

The conduct violated the Securities Exchange Act of 1934 and FINRA rules, said the self-regulator.

Documents do not name the firm that employed Love at the time, but FINRA's BrokerCheck service says he worked at IFS from September 2011 to June 2012.

Other than Gardnyr Michael Capital's attorney, firms contacted to comment on FINRA's report declined to comment or did not respond to a request for comment.

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