WASHINGTON - The Financial Industry Regulatory Authority fined two firms $55,000 for muni trade rule violations and suspended a former broker, as well as fined him to pay $5,000 in fines and ordered him to disgorge $2,837 of ill-gotten gains, for making unsuitable municipal securities recommendations to clients.
Birmingham, Ala.-based Sterne, Agee & Leach Inc. was fined $40,000 and Minneapolis-based Piper Jaffray & Co. was fined $15,000. Dalas Lee Gundersen, formerly with Edward Jones in California, was fined $5,000, ordered to disgorge $2,837 of ill-gotten gains plus interest and suspended for seven business days, through March 13.
The firms and Gundersen neither admitted nor denied the findings, but agreed to the sanctions. They either declined to comment or could not be reached for comment.
FINRA censured and fined Sterne, Agee & Leach after finding the firm mis-reported information to the Municipal Securities Rulemaking Board's Real-time Transportation Reporting System (RTRS) during the first and fourth quarters of 2011.
During the first quarter, the firm reported 86 purchases and sales of munis when they were interdealer deliveries known as "step-outs" that were not reportable interdealer trades to the RTRS, FINRA said. During the fourth quarter, it reported 57 such trades, according to the self-regulator. The trades violated the MSRB's Rule G-14 on reports of sales and purchases, FINRA said.
The $40,000 fine was part of a total $147,000 fine FINRA levied against the firm for corporate as well as muni trade reporting failures.
Piper Jaffray was censured and fined $10,000 for violating Rule G-14 as well as $5,000 for running afoul of MSRB Rule G-27 on supervision during the first half of 2013.
FINRA said the firm inaccurately reported a M020 Special Condition Indicator to the RTRS for 805 trade reports, about 5% of its total 15,045 matched interdealer trades for that period. The self-regulator found the firm's supervisory system was not reasonably designed to comply with the applicable securities laws and rules regarding the special indicator codes.
Gundersen was suspended and fined after a married couple, based on his recommendations, invested about $1.26 million or 80% of their net worth, in Class A shares of the Invesco Intermediate Term Municipal Income Fund (VKLMX) in April and May of 2013. Their investments generated about $7,556 in gross commissions, of which Gundersen received $2,837.
In July 2013, the couple complained to Edward Jones about a decline in the value of their VKLMX investment. In December of that year, they sold the fund, realizing a loss of $45,775 and incurring about $11,900 in deferred sales changes. The firm subsequently settled their complaint with the firm for about $46,000
FINFRA found Gundersen violated FINRA rules in that the recommendation was unsuitable because the investment represented an excessive concentration of the couples' net worth. Edward Jones terminated Gundersen's registration in December 2014.
