WASHINGTON — The Financial Industry Regulatory Authority censured and imposed a $200,000 fine on the former Howe Barnes Hoefer & Arnett in Chicago for excessive markups of zero-coupon municipal bonds and U.S. Treasury and agency STRIPS, questionable trading practices, and supervisory failures.
Only $76,000 of the total $200,000 fine for the firm, which was acquired by Raymond James Financial, Inc. in 2010, was related to violations of Municipal Securities Rulemaking Board rules and the rest was for violations of the rules of NASD, FINRA's predecessor.
FINRA also censured and fined Atlanta-based J.P. Turner & Co. $20,000 for failing to deliver official statements in connection with 65 sales of newly issued muni securities.
Neither of the firms admitted nor denied the findings, but agreed to the sanctions. Firm officials declined to comment.
FINRA's case against the Howe firms dates back to 2007 and 2008. The self-regulator said it did not seek restitution from the excessive markups, which ranged from 5.24% to 8.48% for the 50 munis and 3.87% to 6.75% for the 83 STRIPS, because the firm already paid it. FINRA said the markups exceeded the Howe's guidelines.
The trades were put through another FINRA registered broker-dealer, which FINRA did not identify other than to say it owns a non-voting 20% preferred stock interest in Howe. That broker-dealer's trading desk purchased the securities from the street on the same day the securities were sold to Howe's customers.
The broker-dealer's trading desk offered the munis and STRIPS to one of its salesmen, inclusive of a markup. The salesman bought them and then offered them to Howe with a second markup. Howe sold them to customers with a third markup. Howe was unaware of the number or percentage of markups, FINRA said.
Howe's customers paid $64,000 more than necessary, but Howe voluntarily paid them back.
FINRA said the markups violated the Municipal Securities Rulemaking Board's Rule G-30 on prices and commissions and that the firm's failure to supervise the markups violated its Rule G-27 on supervision. The firm also violated several NASD rules.
FINRA said J.P. Turner & Co., between June 20, 2011 and June 22, 2012, violated Rule G-32 on primary offering disclosures by stating in the trade confirmations it send customers for 65 sales that "complete information will be provided upon request."
G-32 requires a firm to deliver an OS prior to the settlement date in connection with a primary offering. In lieu of physical delivery of the OS, the firm can send a notice to a customer advising how to obtain an OS from EMMA and that the firm will provide an OS upon request.
