WASHINGTON — The Financial Industry Regulatory Authority fined six firms and an individual a total of roughly $233,000 for violations of municipal securities rules, the self-regulator announced Thursday.
Several of the cases stemmed from the firms’ inadequate internal controls and procedures designed to ensure compliance with rules of the Municipal Securities Rulemaking Board, which are enforced by FINRA, as well as trade reporting violations of MSRB Rule G-14, on reports of purchases and sales.
All of the firms accepted FINRA’s sanctions without admitting or denying its findings.
The self-regulator censured Boston-based Corby Capital Markets Inc. and assessed a $100,000 fine for failing to report approximately 12,113 muni transactions — 31% of its total — to the MSRB between February 2007 and June 2010. The firm mistakenly reported the transactions to the National Securities Clearing Corp.’s Real-Time Trade Matching system, but not to the MSRB’s Real-Time Transaction Reporting System, violating Rule G-14.
Corby also failed to establish and maintain a supervisory system and adopt, maintain, and enforce written supervisory procedures reasonably designed to achieve compliance with MSRB reporting requirements, violating Rule G-27 on supervision, FINRA said.
“It was a paperwork issue that blossomed out of regulations,” said Michael Reilly, Corby’s president.
FINRA censured and fined Lime Rock, Conn.-based Kuhns Brothers Securities Corp. $205, and ordered it to pay $37,566 in restitution to customers, for buying munis for its own account from a customer or selling munis for its own account to a customer at prices that were not fair and reasonable.
Specifically, in 15 transactions between May 2004 and August 2006, FINRA found the firm used markups ranging between 4.44% and 7.9%, and markdowns ranging between 4.11% and 5.08%, violating Rules G-17 on fair dealing and G-30 on prices and commissions.
The firm also failed, under G-27, to ensure adequate supervisory reviews of the registered representative who conducted the customer trades, to detect and prevent the G-30 violations.
FINRA barred the representative, whom it did not identify, from the industry in 2008, after he failed to appear for an interview in the underlying investigation, according to enforcement documents.
Robert Drake, vice president and chief compliance officer, declined to comment on the settlement.
The self-regulator censured and fined New York-based Stoever, Glass & Co. $37,500 for, between September 2007 and March 2009, failing to establish adequate written procedures concerning its muni business and completion of muni order tickets, in violation of Rules G-8 on books and records and G-27.
FINRA censured and fined Frederick J. Stoever, president and chief compliance officer, $7,500 for the G-27 violations.
Stoever said in an interview that the firm had “satisfactorily addressed” all of FINRA’s concerns and hired a compliance counsel.
The self-regulator also censured and fined New York-based First New York Securities LLC $25,000 for failing to report information on muni transactions to the RTRS, in violation of Rule G-14, during the third quarter of 2009
Specifically, FINRA said the firm failed to report the correct time of trade to RTRS for 90 muni transactions and failed to report information about 78 of those transactions — or 10.6% of its total — to RTRS within 15 minutes of the trade.
The firm also failed to show the correct execution time for 85 transactions, violating G-8.
In an additional 72 transactions stemming from a separate review, FINRA said the firm failed to report trade information to RTRS within 15 minutes, violating G-14.
FINRA found the firm’s supervisory system failed to provide for supervision reasonably designed to achieve compliance with MSRB rules in violation of G-27.
An attorney for First New York did not respond to a request for comment.
Similarly, the self-regulator censured and fined Minneapolis-based Piper Jaffray & Co, $12,500 for trade-reporting violations.
In particular, between Apr. 1, 2009, and June 30, 2009, the firm failed to report the correct time of trade to RTRS in 222 reports on 2.2% of its muni transactions during that period.
The firm also failed to report information about 135 muni transactions, or 1.3% of its total, within 15 minutes of the trade.
FINRA found the firm violated G-14.
A Piper Jaffray spokesperson did not respond to an e-mail requesting comment.
The self-regulator censured and fined Oakland-based Internet Securities $12,500, and required it to retain an outside consultant to prepare a report about the adequacy of its supervisory and compliance policies and procedures and supervisory controls.
In addition, FINRA suspended Michael Beardsley, the firm’s president and CEO, from associating with any member firm as a principal for one year. FINRA did not fine Beardsley, noting he submitted an affidavit showing an inability to pay.
Among “varied and widespread” supervisory failures by Beardsley and the firm, FINRA found that on Sept. 20, 2009, and Jan. 19, 2011, Beardsley certified that he had reviewed a report showing the firm’s processes for establishing, maintaining, and reviewing policies and procedures reasonably designed to achieve compliance with FINRA and MSRB rules and federal securities laws and regulations.
He also certified that he had reviewed a report testing the effectiveness of such policies and procedures on a periodic basis.
“In fact, the report did not evidence any processes for testing the effectiveness of such policies, and no such testing was done,” FINRA said.
Internet Securities did not respond to a request for comment.
