Why Gates Capital Corp. Must Pay $22,500 Fine to FINRA

WASHINGTON – Gates Capital Corp. has agreed to pay a $22,500 fine to the Financial Industry Regulatory Authority for failing to meet transaction reporting standards mandated under Municipal Securities Rulemaking Board rules.

FINRA disclosed the June 20 settlement in its monthly disciplinary report for August.

The New York City-based Gates Capital agreed to the fine and settlement without admitting or denying FINRA's findings. Young Kim, Gates' executive vice president and chief financial officer, declined to comment on the settlement.

FINRA's settlement documents included a letter Kim sent to it on May 27 informing it that Gates had re-educated all of its municipal securities representatives about trade reporting and would include the subject as an agenda item at the firm's next annual compliance meeting.

FINRA found that, between July 1, 2014 and Sept. 30, 2014, Gates failed to report information about 40 muni transactions to the MSRB's Real-time Transaction Reporting System within the required 15 minutes of the time of trade. Those transactions accounted for 2.28% of the transactions that the firm reported to RTRS over FINRA's review period and represent violations of MSRB Rule G-14 on reporting of sales and purchases, according to FINRA.

Gates also failed to report the correct time of trade to RTRS in 40 muni transaction reports, another violation of Rule G-14, FINRA said. Additionally, FINRA found that Gates violated MSRB Rule G-8 on books and records by not showing the correct time of execution on memos for 36 brokerage orders.

In conjunction with the failures, FINRA determined that the firm did not have reasonably designed supervisory procedures to comply with the securities laws and prevent such violations from taking place. The firm specifically did not have written supervisory procedures (WSPs) that reflected the actual procedures the firm had for designating who in the firm should be responsible for ensuring compliance and how enforcement of the WSPs should be documented, FINRA said.

The WSP failures were a violation of MSRB Rule G-27 on supervision. Kim, in his letter to FINRA, said the firm has updated its WSPs to be more specific about who is responsible for any future RTRS compliance problems and the corrective steps to be taken to prevent late trade reporting.

Of the $22,500 fine, $15,000 is attributable to the reporting violations, $5,000 is for the supervision violations, and $2,500 is for the books and records violations.

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