WASHINGTON – R. Seelaus & Co., Carty & Co., and Emmet & Co. have agreed to pay a total of $83,000 to settle separate charges by the Financial Industry Regulatory Authority related to unfair markups, trading below the minimum denomination, and trade reporting failures involving municipal securities.
The firms accepted the settlements without admitting or denying FINRA's findings. Representatives from the three firms either couldn't be reached or declined to comment.
R. Seelaus & Co., which is based in Summit, N.J., agreed to pay a $25,000 fine to settle charges that its markups or markdowns in nine transactions between Oct. 1, 2013, and Dec. 31, 2013, were not fair and reasonable. FINRA said in the settlement document that it took into account relevant factors for such a determination including the best judgment of the dealer about the fair market value of the securities, the expense involved in completing the transactions, and the total dollar amount of the transactions.
The firm also agreed to pay about $13,000 with interest in restitution to the customers that the unfair markups and markdowns affected. FINRA found that R. Seelaus' actions constituted violations of Municipal Securities Rulemaking Board Rules G-17 on fair dealing and G-30 on prices and commissions.
R. Seelaus & Co. settled a similar matter with FINRA on June 15, 2012, when it agreed to pay a $15,000 fine and restitution of nearly $6,000 for unfair pricing violations tied to nine municipal securities.
In its action against Memphis, Tenn.-based Carty & Co., FINRA found that the firm had completed 71 muni transactions between March 18, 2013, and May 18, 2015, in amounts that were below the designated minimum denomination set for the securities. Carty & Co. paid a $30,000 fine to settle the charges related to those transactions.
MSRB Rule G-15 on confirmation, clearance, settlement, and other uniform practice requirements with respect to customer transactions, prohibits dealers, with limited exceptions, from selling securities below the securities' defined minimum denomination.
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 its official bond documents. Issuers sometimes set higher minimum denominations on bonds that are risky to discourage retail investors from buying them.
Carty & Co. also failed to disclose to its customers at the time of trade in 59 of the 71 transactions that the amount was below the designated minimum denomination. FINRA found that the failure constituted a violation of MSRB Rules G-17 and G-47 on time of trade disclosure. The conduct triggered both rules because such a violation fell under Rule G-17 prior to July 5, 2014 and under G-47 thereafter.
Additionally, FINRA found that while Carty & Co. had written supervisory procedures prohibiting the sale of munis below their minimum denominations, it didn't have system or controls in place to monitor and prohibit that conduct. The failure constituted a violation of MSRB Rule G-27 on supervision, according to FINRA.
The charges against Far Hills, N.J-based Emmet & Co. relate to a failure to report 48 muni transactions to the MSRB's Real-time Transaction Reporting System between Jan. 1, 2015, and March 31, 2015. The firm paid a $15,000 fine after FINRA said Emmet & Co. reported the 48 transactions to RTRS, then erroneously cancelled the reports. Carty & Co.'s actions violated MSRB Rule G-14 on reports of sales or purchases, FINRA said.
Emmet & Co. similarly settled with FINRA in December 2010 over charges that the firm failed to report 85 muni transactions to RTRS in a timely way. The firm paid $17,500 in that settlement.