WASHINGTON — The Financial Industry Regulatory Authority has fined four firms a total of $290,000 for violations of municipal securities rules, including E. J. De La Rosa & Co., which was hit with a $200,000 fine for improperly using bond proceeds to reimburse itself for payments to a lobbying group.
De La Rosa agreed to pay the fine plus $43,564 dollars in restitution to issuers FINRA said were wronged when the firm used bond money to recoup its payments to the California Public Securities Association, a lobbying organization that keeps underwriters in the Golden State apprised of legislative and regulatory developments.
Between January 2006 and December 2010, FINRA alleged, De La Rosa violated the Municipal Securities Rulemaking Board's Rules G-17 on fair dealing and G-27 on supervision when it sought from issuers the $68,371 dollars it paid CalPSA during that time. The CalPSA expenses were not necessary to complete the underwriting, nor were they accompanied by adequate disclosure about the nature of the transaction fees, FINRA said. The Los Angeles-based firm has already returned nearly $25,000 to various issuers, according to FINRA.
In addition to the money, De La Rosa agreed to provide FINRA written certification within 30 days that it has reviewed its supervisory systems and procedures to ensure the firm complies with G-17, as required by G-27.
De La Rosa is the latest firm to be penalized for conduct related to CalPSA, which requested fees from its members based on the volume of munis they underwrote in the state. Membership was not mandatory for underwriting in California.
The action was part of the same investigation that resulted in FINRA fining five firms, including Citigroup and Merrill Lynch, now Bank of America Merrill Lynch, $4.48 million a year ago. Last month, FINRA imposed a $200,000 fine and restitution on Barclays Capital Inc. for the same conduct.
The other firms and their fines included $60,000 for Fidelity Brokerage Services LLC, $20,000 for UBS Financial Services Inc., and $10,000 for C & Co/Princeridge LLC. The firms agreed to settle the charges by paying the fines without either admitting or denying guilt.
FINRA investigators charged Boston-based FBS with violations of the fair-dealing rule and the supervisory rule when it failed to make proper disclosures of redemption provisions and material events concerning municipal securities. From January 2007 through September 2011, FINRA found, FBS received three data feeds from a third-party vendor related to extraordinary redemption provisions of munis. The firm mistakenly uploaded only one of these feeds, meaning that FBS' systems did not correctly reflect the features of some bonds.
"As a result, approximately 706 municipal securities were not identified as 'callable' by FBS," FINRA determined.
In another review period from about July 2009 through May 2011, FBS used that same vendor to provide data feeds for material events disclosures on the bonds the firm traded and received incomplete information. This resulted in about 242,000 munis listed on FBS' systems with incomplete material events disclosures. The firm violated the fair- dealing rule with the faulty disclosures, and the supervisory role by not having adequate systems in place to prevent such problems, FINRA said.
An FBS spokesman said the firm self-reported the issue and assisted FINRA’s investigation, and took steps to address the issue several years ago.
UBS, with offices in New York, violated the fair-dealing rule and Rule G-30 on prices and commissions when it unfairly marked up prices on five transactions between Oct. 1, 2008 and Dec. 31 2010, FINRA found, with prices sometimes jumping by more than 10% on trades minutes apart.
"We are pleased the matter is resolved," said UBS Americas spokesman Gregg Rosenberg.
New York-based Princeridge violated the fair dealing rule and supervisory rule in addition to Rule G-14 on reports of sales or purchases when it improperly reported dozens of transactions between April 1 2012 and June 30, 2012, FINRA determined. The 54 purchase and sale transactions reported during that period were "step outs," trades executed in tandem by multiple brokerage firms, rather than true inter-dealer transactions reportable to the system. Princeridge, De La Rosa, and either declined or did not respond to requests for comment.
