FINRA fines two firms, broker $45,000 for muni violations
Two dealer firms and a former broker have agreed to pay a total of $45,000 to the Financial Industry Regulatory Authority to settle separate charges that they violated multiple municipal securities rules.
Morgan Stanley, Ameritas Investment Company LLC and former Stifel broker Charles Postel agreed this week to pay the fines and be censured while neither admitting or denying FINRA’s findings.
Morgan Stanley settled its charges for $30,000 for violating Municipal Securities Rulemaking Board Rule G-14 on transaction reporting.
From Jan. 1 2016 to March 2016 and July 1, 2016 through Dec. 31, 2016, Morgan Stanley failed to timelt report to the MSRB’s Real-Time Transaction Reporting System 126 large block transactions, FINRA found.
“These transactions represented 17.1% of the total number of large block transactions in municipal debt securities that the firm reported during the periods,” FINRA said.
“The settlement does not allege intentional misconduct by the firm and there has been no finding that any client or market participant was financially harmed," the firm said in a statement. "Morgan Stanley is committed to the timely reporting of its trades.”
Ameritas paid $10,000 to settle charges of violating MSRB Rule G-23 on activities of financial advisors.
Between Feb. 10, 2018, and Aug. 20, 2018, Ameritas provided underwriting services for an issue with which it had an active “blanket” financial advisory agreement, therefore acting simultaneously as the issuer’s financial advisor and underwriter, FINRA found.
In 2011, the MSRB amended its Rule G-23 so that a firm with a financial advisory relationship to an issuance of muni securities cannot act as an underwriter for that same issuance.
Ameritas had that active blanket financial advisory agreement with the issuer from Aug. 1, 2017 to Dec. 31, 2018 and it was not limited to specific issuances of bonds, FINRA found.
The agreement outlined the firm’s obligations to, “assist the [issuer] ... in review of the [issuer's] available and possible projected revenue sources and in the development of a forecast and strategic plan recommending the most appropriate source or combination of sources to pay for any proposed capital improvement financing program(s).”
Its obligations also included comparing and evaluating possible methods of financing capital improvement programs, providing ongoing advice on financial markets in general, underwriting or private placement services among others, FINRA said.
“Notwithstanding the firm’s financial advisory agreement with the issuer, during the relevant period, Ameritas provided underwriting services to the issuer on three issuances at the issuer's requests,” FINRA said.
Ameritas attempted to mitigate potential conflicts of interest through saying in its advisory agreement that it would serve as underwriter only if the issuer consented in writing and that it would not accept compensation as a financial advisor for issuances where it was also acting as an underwriter, FINRA said.
“That attempted mitigation failed to address the conflict created for Ameritas by serving as underwriter for an issuer with which it had a blanket financial advisory agreement and, thus, a financial advisory relationship,” FINRA said.
Ameritas’ lawyer declined to comment.
Postel agreed to pay $5,000 to settle charges this week that he violated MSRB Rule G-17 on fair dealing after FINRA found he failed to get written acknowledgment from customers and approval from the firm before engaging in cross transactions.
Postel was a broker at Stifel from October 2008 to May 2018, according to BrokerCheck, FINRA’s public online database that provides information about brokers and brokerage firms. Postel was fired in May 2018, according to BrokerCheck.
Stifel required its registered representatives to get written acknowledgment from the firm’s customers and written approval from the firm before engaging in cross agency transactions between Stifel’s customers, FINRA found.
Agency cross transactions are not encouraged and should be considered on a case-by-case basis since they may raise regulatory concerns, Stifel wrote in its manual.
Postel executed 56 pairs of cross transactions in muni securities between the firm’s customers without the customers’ written acknowledgment and the firm’s approval, FINRA examiners found. Postel annually certified in writing that he understood and would comply with the manual.
“Each of the 56 pairs of municipal bond transactions were structured by Postel in a similar manner, with Stifel selling municipal bonds as agent on behalf of one of Stifel’s customers to another broker-dealer and then buying the same bonds back on the same day from the same broker-dealer as agent on behalf of another Stifel customer,” FINRA said.
Also, for each of the 56 pairs, Postel determined the amount of the mark-up that could be charged by other broker-dealers for those transactions.
Stifel did not immediately respond to comment.