FINRA fines firm $70,000 for muni violations

New York-based Wellington Shield & Co., LLC has agreed to pay $70,000 to settle charges it violated a municipal securities rule after the Financial Industry Regulatory Authority found it mislabeled 90% of its municipal securities trades.

The firm agreed Wednesday to pay the fine and be censured while neither admitting nor denying FINRA’s findings that it violated Municipal Securities Rulemaking Board Rule G-8, on books and records made by dealers and municipal advisors. The firm’s total fine was $100,000, including other violations.

From September 2012 through December 2016, the firm inaccurately stated in 13,442 instances related to municipal securities and government agency trades, that the trades were unsolicited, even though they were solicited, FINRA found. In a solicited trade, an investment adviser recommends the transaction to a client as opposed to unsolicited trades where the investor initiates the transaction.

Between September 2012 and April 28, 2015, the firm mismarked 12,387 trades, about 90% of its municipal and government agency securities during that time, according to FINRA.

Finra

Wellington’s order entry system recorded the municipal securities trades by default as “unsolicited” if the person entering the trade did not specify whether it was solicited or unsolicited.

The firm’s fixed income traders in government agency and municipal securities failed to consistently complete the unsolicited/solicited field when entering the trades into the system, FINRA found.

“Although the traders kept contemporaneous records outside the OES that were generally complete and accurate, their failure to fully populate the OES caused 13,442 trades in municipal securities and government agency securities to be mismarked as unsolicited on the firm's trade blotter,” FINRA wrote.

Wellington’s compliance officer discovered the errors on April 28, 2016 while reviewing the firm’s trade blotter and the traders then received additional training in its order entry system.

“While the error rate substantially declined after the firm's initial discovery of the errors, an additional 1,055 trades in municipal and government agency securities (approximately 14% of such trades) were mismarked as unsolicited between April 29, 2015 and December 31, 2016,” FINRA said.

In 2016, FINRA began investigated the errors after Wellington gave them a trade blotter, including the mismarked trades, during a routine regulatory exam.

The issue was resolved in 2017, FINRA said when the firm introduced a new procedure to confirm whether trades entered for the accounts of multiple customers had been accurately marked as unsolicited. Customers didn’t experience financial harm and the inaccurate information was not disseminated to the market, FINRA found.

The firm did not have any relevant disciplinary history with the Securities and Exchange Commission, regulators, FINRA or any other self-regulatory organizations.

The firm also violated other FINRA rules and the Exchange Act Rule 17a-3 which requires broker-dealers to make and keep current securities purchase, sale blotters and confirmations of all purchases and sales of securities.

Wellington provides brokerage and wealth management services to its high net worth retail customer base. It has about 69 registered representatives working from its eight branch offices.

The firm’s attorney did not respond immediately to comment and the firm declined to comment.

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Enforcement MSRB rules Securities law FINRA MSRB Washington DC New York
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