Firm, CEO, Broker Sold Seniors Defaulted Bonds at Excessive Prices

WASHINGTON – The Financial Industry Regulatory Authority has ordered R.M. Duncan Securities, its president and chief executive officer, and a broker to pay a combined $166,000 for selling defaulted municipal securities from their own accounts to seniors at unreasonably high prices and for not maintaining adequate supervisory procedures.

The violations and sanctions were disclosed in FINRA's November disciplinary report.

The Little Rock, Ark.-based firm, its president and CEO Randall Duncan, and broker Stephen Murchison, must pay $90,000 in fines for violating Municipal Securities Rulemaking Board Rules G-17 on fair dealing and G-30 on prices and commissions, as well as $61,263 plus interest in restitution to customers. The firm will have to pay an additional $15,000 for violating MSRB Rule G-27 on supervision.

Neither Duncan nor Murchison received a suspension from the market or any other sanction than the ordered payments, except for being censured.

"The sanctions … imposed … are in the public interest, are sufficiently remedial to deter [the respondents] from any future misconduct and represent a proper discharge by FINRA of its regulatory responsibility under the Securities Exchange Act of 1934," FINRA said in the Order Accepting Offer of Settlement.

The complaint against the firm, Duncan, and Murchison was filed at the end of 2014. The firm and two men proposed the settlement and the National Adjudicatory Council, one its subcommittees, as well as the Office of Disciplinary Affairs accepted it in September. The firm and two men neither admitted nor denied the allegations. R. M. Duncan Securities officials declined to comment on the settlement.

FINRA found that from April 21, 2010 through April 27, 2010, the firm, through Duncan and Murchison, executed four transactions in Maryland Economic Development Corp. bonds, referred to as Ravenwood bonds, at prices about 55% higher than the prevailing market price at the time.

The bond purchasers were falsely assured the bonds would generate full 11% interest payments when in reality they had been in default since January 2010.

The action leading up to the transactions began when a wealthy Fayetteville, Ark. Individual identified only was WS, whose business the firm wanted to maintain, contacted Murchison about selling his entire block of his Ravenwood bonds. He had purchased the bonds at a price of 50 or 60 and wanted to make a profit. Murchison, after receiving approval from Duncan, bought the individual's bonds at a price of 80, even though the prevailing price was 52.89.

Murchison then solicited three elderly customers to purchase the Ravenwood bonds at prices between 82.375 and 82.75. The firm also sold some of the bonds to another firm, identified only as ABC, at a price of 80.

The sales left R.M. Duncan with a bond shortfall, so it purchased additional Ravenwood bonds from Eminence Partners LLLP, Duncan's investment fund. Less than a week earlier, R.M. Duncan sold the bonds back to Eminence at a price of 53.47.

FINRA found those actions violated Rules G-17 and G-30. Additionally, the firm's supervisory system failed to ensure compliance with the MSRB's fair pricing requirements, had no written procedures for how the firm should review the market price for munis, and did not identify a process to document supervisory reviews of prices charged to customers, FINRA found.

The firm also violated Rule G-27, FINRA said in its order.

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