WASHINGTON — The Financial Industry Regulatory Authority has fined three firms a total of $62,500 for municipal and other rule violations, including $32,500 from Lexington Investment Co. for failing to accurately report muni and corporate securities transactions.
In monthly disciplinary actions it released yesterday, the self-regulator said it also fined AXA Advisors Inc. $20,000 for inaccurate or incomplete trade confirmations it sent to customers for municipal and corporate securities, as well as fining Kimelman & Baird LLC $10,000 for unfair and unreasonable commissions on municipal securities transactions.
All three firms consented to FINRA’s findings without admitting or denying the charges. Officials at Lexington, which is named after the Kentucky city where it is based, declined to comment, and representatives of AXA and Kimelman, both based in New York, could not be reached.
FINRA found that from Dec. 1, 2008, to May 31, 2009, Lexington failed to accurately report 34 of 140 muni transactions. The transactions were reported as “bunched” trades when the firm consolidated trade information for multiple customer accounts into one trade report, FINRA said.
The activity violated the Municipal Securities Rulemaking Board’s Rule G-14 on reports of sales or purchases.
FINRA also found that during February, March, and April 2009, the order tickets on all 39 municipal securities transactions executed by Lexington failed to disclose the time of receipt, violating the MSRB’s Rule G-8 on books and records.
FINRA further cited the firm for supervisory failures in violation of the MSRB’s Rule G-27 on supervision.
Meanwhile, during a review of AXA Advisors between Sept. 11, 2007, and April 11, 2008, FINRA found that all 60 of the muni trades it sampled — out of the 1,075 muni transactions required to be reported to the MSRB during the period — were reported inaccurately.
Specifically, each transaction was reported with AXA acting in a principal capacity when the firm actually acted as an agent on the transactions.
Additionally, AXA caused inaccurate and incomplete confirmations to be sent to customers in each of the sample transactions, which were incorrectly confirmed to customers as principal transactions when they should have been confirmed as agency transactions.
The conduct violated rules G-14 and G-15 on confirmations, FINRA found. Agents do not own the bonds they purchase for customers while principals purchase the securities and hold them in their inventory.
Finally, FINRA found that five transactions Kimelman bought or sold as an agent for a customer included a commission or service charge that was in excess of a fair and reasonable amount. FINRA documents suggest the commissions were 2.5%. The conduct violated the MSRB’s Rule G-30 on prices and commissions, FINRA said.
The self regulator also faulted the firm for supervisory failures. It said the firm did not have written procedures for how often a supervisor should ensure that the firm complies with MSRB rules or a statement as to how the completion of such procedures should be documented. The conduct violated MSRB Rule G-27 on supervision, FINRA said.