WASHINGTON - The Financial Industry Regulatory Authority has fined and censured New York-based Gates Capital Corporation $25,000 for failing to report variable rate demand obligation interest rate resets on time.
FINRA announced the penalty in its first monthly disciplinary report of 2015, released Thursday.
Gates Capital agreed to pay the fine without admitting or denying the findings of FINRA's investigators, who discovered that the firm failed to timely filed information about VRDO rate resets in 137 instances between May 2012 and September 2013. The penalty is one of the largest given to a firm for muni violations in recent months.
That conduct violated the Municipal Securities Rulemaking Board's Rules G-34 on CUSIP numbers new issue and market information requirements, G-8 on books and records, and G-27 on supervision, FINRA determined. G-34 requires a remarketing agent such as Gates Capital to submit information about VRDO rate resets to the MSRB's SHORT system by 6:30 p.m. Eastern Time on the date of the reset. VRDOs are long-term bonds whose interest rates typically reset on a daily, weekly or monthly basis.
But FINRA found that the firm reported the required information after 6:30 p.m. in 128 instances, and in nine instances submitted the required information "at times ranging from one day to almost two months after the date when the interest rate reset was determined."
"For all of the 7,559 interest rate resets that were affected by the firm during the relevant period, the firm failed to report the time at which the firm determined the interest rates and instead reported the time at which the firm submitted the interest rate resets to SHORT," the FINRA report continued. "In addition, the firm failed to maintain documentation reflecting the actual times at which the interest rate resets were determined for any of these interest rate resets."
The firm's written supervisory procedures were inadequate, FINRA found, because they neither stated the time by which resets had to be reported nor specified that the actual time of the reset had to be reported to SHORT.
This is not the first time the firm has tangled with FINRA over this issue. It agreed in 2012 to pay $10,000 to settle FINRA charges that it had failed to timely report more than 1,500 interest rate resets.
Gates Capital could not be reached for comment on the disciplinary action.
