North Star; Richards, Merrill & Peterson Hit with FINRA Fines

WASHINGTON — Richards, Merrill & Peterson, Inc. has agreed to pay a $45,000 penalty for trading below the minimum denomination and North Star Investment Services, Inc. will pay $15,000 for municipal trade reporting failures under settlements with the Financial Industry Regulatory Authority.

Additionally, Shiva Naby, an employee in Wedbush Securities' Newport Beach, Calif. office, must pay $25,000 and is banned from associating with any FINRA-registered firm for two years after a FINRA hearing panel found she falsified documents submitted during an authority investigation.

The actions and sanctions were disclosed in FINRA's monthly disciplinary report for June. The firms neither admitted nor denied FINRA's findings and their representatives did not comment or could not be reached for comment. Naby's lawyer also could not be reached for comment.

FINRA found that between April 7, 2014 and April 25, 2014, Spokane, Wash.-based Richards, Merrill & Peterson sold one municipal bond in 62 transactions to customers in amounts below the $25,000 minimum denomination set by the issuer.

The minimum denomination for a bond is the lowest amount of the bond that can be bought or sold, as determined by the issuer in the official statement.

The transactions violated Municipal Securities Rulemaking Board Rule G-15 on confirmation, clearance, settlement, and other uniform practice requirements with respect to customer transactions, which prohibits trading below the established minimum.

Chicago-based North Star was found to have failed to report 597 of 800 municipal securities transactions that occurred between Jan. 1, 2013 and Dec. 31, 2014. Of the 597 transactions not reported, 261 were customer transactions and 336 were interdealer transactions.

The failure to report the transactions violated MSRB Rule G-14 on reports of sales and purchases, which requires dealers to report trades to the MSRB within 15 minutes of the trade.

During the same time period, FINRA also found North Star provided multiple time stamps for the time of receipt of a municipal bond order in 48 of 50 muni transactions. The firm also did not record the date and time of order receipt in 2 of 50 transactions and did not record an accurate execution time with regard to 1 of 50 transactions, FINRA said.

Those actions were found to have violated MSRB Rule G-8 on recordkeeping.

North Star also violated MSRB Rule G-27 on supervision, FINRA said, because it failed to review its Real-Time Transaction Reporting System reports between April 11, 2011 and Jan. 20, 2015 to ensure the adequacy and accuracy of the firm's reporting of muni transactions, as its written supervisory procedures require.

The action against Naby is tied to settlements that FINRA released earlier this year with Wedbush and Samantha McAfee, the firm's former capital markets business conduct officer. FINRA levied a $130,000 fine against Wedbush and a $20,000 fine against McAfee, while also requiring that she requalify as a general securities principal in connection with the falsified documents.

The FINRA hearing panel found that Naby intentionally created the false impression that Wedbush conducted and evidenced a supervisory review of MSRB "report cards," which contain RTRS data, during the fourth quarter of 2011 rather than when the firm actually printed and reviewed the report cards in April 2012.

Naby, who is not registered with FINRA, admitted to whiting out report-generated dates on the cards and said that, as an unregistered person she did not understand the significance of the dates and believed that they were irrelevant. She did not inform anyone with the firm about her decision to white the dates out before they were sent to FINRA examiners.

The FINRA hearing panel found Naby did not violate MSRB Rule G-17 on fair dealing because it was not explicit the rule applied when supplying documents to FINRA. However, the self-regulator said she violated FINRA Rules 8210 on FINRA investigations and 2010 on professional standards of conduct.

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Enforcement Law and regulation
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