WASHINGTON – Florida-based Benchmark Securities has agreed to pay $25,000 to settle Financial Industry Regulatory Authority charges that it violated municipal market rules by giving issuer officials college football tickets that were more expensive than the $100 threshold set for such gifts.
Three other firms agreed to pay a combined $77,500 over separate FINRA charges, two of them for trade reporting failures and one for carrying out muni transactions in amounts below the stated minimum denomination for the securities.
Each of the firms agreed to the penalties without admitting or denying FINRA’s charges. A Benchmark representative said the firm had no further comment outside of FINRA’s documentation and representatives for Alabama-based Joe Jolly & Co., Detroit-based Comerica Securities, and Cleveland-based Keybanc Capital Markets either did not have a comment or could not be reached.
The charges against Benchmark relate to activities the firm engaged in from February 2013 through September 2014. During that time, Benchmark acted as the lead underwriter in a number of negotiated muni transactions and provided gifts in excess of $100, usually in the form of college football tickets, to about 16 municipal issuer representatives, according to FINRA. Members of the firm did not attend the football games with the municipal issuer representatives, FINRA found. The firm’s actions were seen as violations of Municipal Securities Rulemaking Board Rule G-20 on gifts and gratuities.
G-20 prohibits dealers from giving any thing or service of value in excess of $100 per year to a person, other than an employee or partner of the dealer, if the payments are related to the muni activities of the gift recipient’s employer. There is an exception for “normal business dealings,” which include expenses that would be recognized by the Internal Revenue Service as deductible business expenses. FINRA found Benchmark’s gifts did not qualify for the exemption.
Benchmark also violated MSRB Rules G-17 on fair dealing and G-27 on supervision by giving the gifts, FINRA said. The firm’s supervisory procedures, among other things, did not specify how supervision would be performed to ensure compliance with G-20 and did not specify the frequency or process for documenting the firm’s compliance with G-20.
FINRA’s minimum denomination-related findings against Comerica Securities concerned firm activities the period between Dec. 1, 2013 and Dec. 31, 2014. Comerica carried out 15 transactions with customers in amounts below the minimum denomination during that period, FINRA found. The firm agreed to pay a $25,000 fine for violations of MSRB Rule G-15 and $7,500 for supervision violations. It also agreed to offer the customers the opportunity to void the purchases.
Rule G-15 includes the MSRB’s requirements for abiding by a security’s minimum denomination, which generally ranges from $5,000 to $100,000. Higher minimums may allow an issuer to be exempt from certain disclosure requirements under SEC Rule 15c2-12 on municipal disclosure or can be used as a safeguard against unsophisticated investors purchasing riskier bonds.
The findings against Keybanc Capital Markets covered the period between Jan. 1 and Sept. 30 in 2014 and resulted in the firm paying a $35,000 fine over certain reporting failures. Keybanc submitted late and inaccurate interest rate reset information for 815 variable rate demand obligation securities to the MSRB’s SHORT System, FINRA said. The firm acted as the remarketing agent for 71 separate CUSIPs and submitted interest rate reset information on a different day than the one specified in the trust indenture or official statement, according to FINRA. It additionally double-reported an interest rate reset to the SHORT System in 71 separate instances, FINRA said.
This conduct represented violations of MSRB Rule G-34 on market information requirements and accounted for $25,000 of the firm’s fine. The other $10,000 is the result of the firm’s supervision failures under G-27, according to FINRA.
Joe Jolly & Co. paid a $10,000 fine for trade reporting failures that had to do with inaccurate reports of list offering price and takedown transactions on the MSRB’s Real-time Transaction Reporting System. The firm specifically inaccurately listed the reporting code for list offering price and takedown transactions on 59 reports of munis to the RTRS. The inaccurate reports made up about 36% of the 165 total matched transactions that the firm reported to the RTRS from May 1, 2013 through Sept. 21, 2015, according to FINRA. JJC also failed to report 41 of 206 new issue muni transactions to the RTRS.
FINRA found JJC violated MSRB Rule G-14 on reports of sales or purchases as well as G-27. The firm has since taken corrective action to address the problems.