WASHINGTON — The Financial Industry Regulatory Authority fined OFS Securities, Inc. in San Juan, Puerto Rico $40,570 and ordered it to pay more than $13,278 in restitution for buying the territory's bonds for its own account and then selling them to customers at prices with excessive markups.
The violations and sanctions were detailed in FINRA's latest monthly disciplinary actions, which were released on Tuesday.
OFS Securities, formerly BBVA Securities of Puerto Rico until it merged into Oriental Financial Services Corp. last August, neither admitted nor denied the findings but agreed to the sanctions.
According to FINRA, between Jan. 1 and March 31, 2011, OFS Securities violated MSRB Rules G-17 on fair dealing, G-30 on prices and commissions, and G-27 on supervision in eight pairs of transactions.
The firm purchased Puerto Rico sales tax revenue bonds and special tax revenue bonds from a broker-dealer for its own account and then simultaneously sold them to customers for prices with markups ranging from 5.81% to 12.32%.
FINRA said the markups were "not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the [broker-dealer] as to the fair market value of the securities at the time of the transactions... the expense involved in effecting the transaction, the fact that the [broker-dealer] is entitled to a profit and the total dollar amount of the transaction."
In two sets of trades, each of which involved $500,000 of special tax revenue bonds, the markups were 11.73%, while in another trade of $70,000 of sales tax revenue bonds, the markup was 8.33%.
FINRA said OFS Securities violated its own written supervisory procedures with respect to fair pricing, which stated it was the firm's "policy not to permit a markup, mark-down, or commission in excess of 3%."
The firm was also censured.
The fine consisted of $33,070 for violations of G-17 and G-30 and $7,500 for violation of G-27. FINRA ordered the firm to pay interest on the $13,278 of restitution to customers.
