WASHINGTON – Oriental Financial Services, Hilltop Securities, Alluvion Securities and Sterne, Agee & Leach have agreed to pay a combined $133,358 for municipal securities violations uncovered by the Financial Industry Regulatory Authority.
The violations are tied to trading below the minimum denomination, failure to disclose political contributions in a timely manner, charging excessive markups, and delinquently reporting trade information.
FINRA disclosed the sanctions in its monthly disciplinary report for July. The firms neither admitted nor denied the self-regulator's findings and their representatives could not be reached for comment.
Oriental Financial Services, based in San Juan, P.R., agreed to pay a $40,000 fine as well as $18,358 plus interest in restitution to its customers for charging excessive markups or markdowns in five transactions from July 1, 2013 through Sept. 30, 2013.
FINRA said the markups and/or markdowns were not fair or reasonable after considering relevant factors, including the broker's best judgment and the fair market value of the securities at the time of the transactions. The excessive markups or markdowns violated Municipal Securities Rulemaking Board Rules G-17 on fair dealing and G-30 on prices and commissions.
FINRA's $40,000 fine against Dallas-based Hilltop stems from findings that between Jan. 1, 2014 and June 1, 2015, the firm executed sixty-two municipal bond transactions in amounts below the minimum denomination that the issuer had set for the bonds. The firm additionally did not disclose to customers at the time of the trades that the transactions were being executed below the minimum, according to FINRA.
Hilltop, through its actions, violated a portion of MSRB Rule G-15 that prohibits dealers from executing transactions below the minimum denomination, FINRA said. The firm also violated Rules G-17 on fair dealing and G-47 on time of trade disclosure because it did not inform customers of the sub-minimum transactions. Prior to July 5, 2014, a failure to inform customers of a sub-minimum transaction was considered a violation of G-17. However, since Rule G-47 became effective on July 5, 2014 the failure to inform customers has been considered a violation of that rule.
Additionally, FINRA said Hilltop violated Rule G-27 on supervision because it did not have systems or controls in place to prohibit sales below minimum denominations.
Memphis-based Alluvion Securities agreed to a $20,000 fine for its failures to disclose political contribution information to the MSRB in a timely manner. Under MSRB Rule G-37 on political contributions, dealers must send the board a Form G-37 that details, among other things, contributions to issuer officials and political parties of states, as well as issuers with which the dealer has engaged in muni business. The form is due by the last day of the month that follows the end of each calendar quarter.
FINRA found that Alluvion filed its forms for the first three quarters of 2013 on Nov. 15 of that year. That meant the firm was: 199 days late on its first quarter form, 107 days late on its second quarter form, and 15 days late on its third quarter form, the self-regulator said. Alluvion also filed its 2014 fourth quarter form 12 days late, according to FINRA.
Additionally, the firm failed to disclose in its form covering the third quarter of 2013 that it participated in a $12.13 million negotiated muni underwriting in Mississippi in July 2013.
FINRA also cited Alluvion for G-27 violations stemming from its failure to supervise its muni activities.
Sterne, Agee & Leach agreed to pay a $15,000 fine related to 182 muni trades executed between April 1, 2014 and June 30, 2014 that it did not report to the Real-time Transaction Reporting System (RTRS) in a timely manner. The cited transactions made up 3.39% of the total number of municipal transactions the firm reported to RTRS during the review period.
