WASHINGTON — The Financial Industry Regulatory Authority has fined five firms a total of roughly $220,000 for violations of municipal securities rules.
The cases were disclosed in FINRA’s monthly disciplinary actions. The violations stemmed from the firms’ failure to have controls and procedures designed to ensure compliance with muni rules, disclose certain rating information to customers, file timely trade data, and price munis fairly, according to FINRA.
Muni rules are written by the Municipal Securities Rulemaking Board but enforced by FINRA and the Securities and Exchange Commission. All of the firms accepted FINRA’s sanctions without admitting or denying its findings.
The self-regulator censured Citigroup Global Markets Inc. and fined it $75,000 for failing, between July 10, 2008, and March 6, 2009, to have a supervisory system and procedures under Rule G-27 that were reasonably designed to achieve compliance with dealer disclosure requirements for muni customers. Specifically, the firm’s procedures failed to describe in sufficient detail the obligation to disclose to muni customers certain material information, such as a rating agency’s recent downgrade of a security, that would enable them to make informed decisions about buying gas bonds and other munis.
FINRA also directed Citigroup to certify in writing, within 90 days, that it has reviewed its supervisory procedures for disclosure requirements in muni gas-bond transactions, and that it has in place systems designed to achieve compliance with federal securities laws and regulations.
Citi spokeswoman Danielle Romero-Apsilos said: “We are reviewing our systems and procedures and are pleased to have this matter resolved.”
The self-regulator censured RBC Capital Markets LLC and assessed it a $70,000 fine for failing to report municipal trades on a timely basis. FINRA said that, in 1,674 transactions between Jan. 1, 2009, and March 31, 2009, the firm failed to report information within 15 minutes of the trades. In 45 instances, the firm improperly reported information to the MSRB’s Real Time Transaction Reporting System that it should not have. RBC, for example, reported one transaction to the RTRS that it was not required to report. Separately, in 97 block-purchase and sale muni transactions between April 1, 2009, and June 30, 2009, the firm failed to report information to RTRS within 15 minutes of the trade.
For 81 block purchase and sale muni transactions between Jan. 1, 2010, and March 31, 2010, the firm failed to report information within the 15 minute timeframe. In four instances, the firm improperly reported a transaction to RTRS that it was not required to report. Also in 18 reports of muni transactions between Oct. 1, 2009, and Dec. 31, 2009, the firm failed to report the correct yield to the RTRS as well as to customers. FINRA found the firm violated G-14, on reports of sales and purchases, and G-15, on confirmations.
Morgan Stanley was censured and assessed a $40,000 fine for failing to disclose to customers, in 15 municipal gas bond purchase transactions between June 20, 2008, and July 15, 2008, certain rating information related to munis at or before the time of purchase. FINRA found the firm violated Rule G-17 on fair dealing.
“We’re pleased to settle the matter,” said Morgan spokesman Jim Wiggins.
FINRA censured Hennion & Walsh Inc., assessed a $25,000 fine, and ordered it to pay restitution of $8,980, plus interest, to customers for unfair pricing.
Specifically, FINRA found that in eight transactions between Oct. 1, 2008, and Dec. 31, 2008, the firm charged unfair prices, violating Rules G-17 and G-30 on prices and commissions.
An attorney for the firm, Richard Szuch at Bressler, Amery & Ross in Florham Park, N.J., said the underlying conduct was a “minor mispricing” of munis in the fall of 2009, “in what I believe anyone would agree was the most volatile bond market ever.” The self-regulator also censured and fined Samuel A. Ramirez & Co. $10,000 for trade reporting violations.
In 108 muni transactions between Oct. 1, 2009, and Dec. 31, 2009 — roughly 7% of its total muni transactions — the firm failed to report the correct trade time to RTRS, violating G-14, FINRA said. It also found the firm failed to report 90 muni transactions to RTRS within 15 minutes of the trade, violating G-14.
In 94 muni transactions, the firm failed to show the correct execution on a memorandum, violating G-8 on books and records, FINRA said. Jerry Auld, chief compliance officer, declined to comment.
A spokesperson for RBC did not immediately respond to requests for comment.
