FINRA fines Hilltop $100,000 for muni violations

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Hilltop Securities Inc. has agreed to pay $100,000 to settle charges it violated municipal securities rules after the Financial Industry Regulatory Authority found it failed to submit disclosure documents and required forms as part of a larger violation of failing to establish a sturdy anti-money laundering compliance program.

Hilltop agreed to pay the fine and be censured while neither admitting nor denying FINRA’s findings that it violated Municipal Securities Rulemaking Board Rules G-17 on fair dealing, G-32 on disclosures in connection with primary offerings and G-37 on political contributions.

The Financial Industry Regulatory Authority found that Hilltop Securities failed to submit disclosure documents and required forms, violating municipal securities rules.

Hilltop was fined a total of $475,000, with the other money related to violations of FINRA rules designed to detect and report suspicious trading activity in low-priced securities. Those violations are not in connection with municipal securities rule violations.

Hilltop is headquartered in Dallas, Texas and has about 492 registered people and 69 branch offices. In 2015 the firm completed an acquisition of Southwest Securities Group, including First Southwest Company.

From July 2011 to October 2015, Hilltop failed to submit Form G-32 information to the MSRB’s EMMA system in connection with 122 primary offerings of municipal securities for which Hilltop served as a placement agent, FINRA said.

“This failure was a result of a misunderstanding by one branch office of Southwest regarding the need to submit Form G-32 information for private placement primary offerings,” FINRA wrote. “Hilltop discovered these failures during its acquisition of Southwest and self-reported them to FINRA.”

Form G-32 is submitted to the MSRB by underwriters and provides information about a new issuance, such as the underwriting spread, maturity date, initial offering price, minimum denomination among others.

Hilltop also made four Form G-32 filings to EMMA that were between one to three days late, violating MSRB Rule G-32 between January 2015 and March 2016, FINRA found.

Between January 2012 and September 2015, Hilltop also failed to provide MSRB Rule G-17 disclosure letters to issuers in connection with 119 of those 122 offerings, FINRA found. This was a result of its branch office’s misunderstanding regarding private placement primary offerings, FINRA said.

“Hilltop discovered these failures as it trained Southwest employees during its acquisition of Southwest and self-reported them to FINRA,” FINRA wrote.

From October 2014 to September 2015 in connection with 45 of those 122 offerings for which Hilltop failed to submit G-32 information, the firm also failed to report on Form G-37 that it had engaged in municipal securities business with the issuers by acting as a placement agent in connection with the issuers’ muni securities offerings, FINRA found.

Rule G-37 requires disclosures of contributions to officials and bond ballot campaigns and a list of issuers which the broker-dealer has engaged in municipal securities.

Hilltop declined to comment.

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