The Financial Industry Regulatory Authority has ordered five firms to pay $117,425 in fines and restitution to customers for violation of municipal securities trade, pricing and supervisory rules.
Morgan Stanley Smith Barney LLC was fined the highest amount, $45,000, followed by Prager & Co., at $27,500, Merrill Lynch, Pierce, Fenner & Smith Inc., which was ordered to pay a $17,500 fine and $7,425 in restitution to customers, Duncan-Williams Inc. at $10,000 and Van Kampen Funds Inc. at $10,000.
Spokespersons for Morgan Stanley and Merrill declined to comment. Representatives of the other firms didn’t return calls.
FINRA said that between June 1, 2009, and June 30, 2010, Morgan Stanley in Purchase, N.Y., failed to report information regarding 30,000 muni trades to the Municipal Securities Rulemaking Board’s Real-Time Transaction Reporting System. The self regulator did not say what data was missing but said it was reported by a clearing broker-dealer and the firm violated MSRB’s Rule G-14 on trade reporting. San Francisco-based Prager, from Oct. 1, 2008, through Dec. 31, 2008, failed to report information for 150, or 4% of 3,537 muni trades to the MSRB’s RTRS within the required 15 minutes of execution.
Also, from Jan. 1, 2010, through June 30, 2010, the firm also erroneously cancelled 785, or 13% of 6,191 trade reports without re-submitting them. It also failed to enforce its written supervisory procedures, violating MSRB Rules G-14 and G-27 on supervision, according to FINRA.
FINRA said New York-based Merrill, from April 1, 2008 through June 30, 2008, executed 12 transactions in which it bought munis for its own account or sold them from its account to a customer “at an aggregate price that was not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the broker, dealer or municipal securities dealer as to the fair-market value of the securities at the time of the transaction and of any securities exchanged or traded in connection with the transaction, the expense involved in effecting the transaction, the fact that the broker ... is entitled to a profit, and the total dollar amount of the transaction.”
The unfair prices violated the MSRB’s Rule G-17 on fair-dealing and Rule G-30 on prices and commissions, the self-regulator said. The bonds had been issued by the University of California, the Virginia College Building Authority and the Tampa Revenue Health System and were purchased from, or sold to, Merrill’s customers in quantities ranging from $10,000 to $100,000 at prices ranging from 92.366 to 95.05, according to a chart in the enforcement documents. The restitution amounts proposed to be paid to customers ranged from $100 to $1,000.
FINRA said Memphis-based Duncan-Williams, from Jan. 1, 2009, through March 31, 2009, failed to report data from 108 or 3% of trades it made within the required 15 minutes from execution. The firm also failed to provide documentary evidence that it performed supervisory reviews. These failures violated Rules G-14 and G-27, the self-regulator said.
Van Kampen Funds, from April 1, 2010, through June 30, 2010, failed to report information pertaining to 46, or 3.63% of its 1,267 muni trades as required. The firm failed to report the correct time of trade to the MSRB and in trade memoranda, violating MSRB Rules G-14 and G-8 on books and records.