PHOENIX - Mehran Tazhibi agreed to pay $10,000 and be suspended for two months to settle Financial Industry Regulatory charges that he recommended two retail customers invest in non-investment grade municipal bonds intended only for sale to institutional buyers.
Tazhibi agreed to the settlement without either admitting or denying FINRA’s findings that he made unsuitable recommendations to the investors in violation of Municipal Securities Rulemaking Board rules.
According to the regulator, the rule violations stemmed from a July 2013 recommendation Tazhibi made to a married couple while he was a registered broker at Citigroup Global Markets.
Tazhibi recommended that the couple invest approximately $135,000 in a California Statewide Communities Development Authority Revenue Bond the offering documents of which stated that the securities "involve[ s] risks that may not be appropriate for certain investors" and "will be sold only to purchasers who are approved institutional buyers." That restriction was extended to secondary market transactions.
The development authority planned to loan the bond proceeds to the Thomas Jefferson School of Law to finance the acquisition, construction and improvements of a multi-story building for the new law school campus in San Diego.
The bonds were to mature in October 2032 and pay interest at an annual rate of 7 .25%. Approved institutional buyers included insurance companies, registered investment companies, employee benefit plans, and small business companies handling at least $100 million in securities of issuers that not affiliated with them.
MSRB Rule G-19 on suitability of transactions requires brokers "to have a reasonable basis to believe that a recommended transaction or investment strategy involving a municipal security or municipal securities is suitable for the customer."
FINRA examiners found that Tazhibi had no such basis. When he recommended the bonds to them, the customers had just retired and their investment portfolio had a stated goal of “conservative risk tolerance.”
By July 2013, S&P Global Ratings had downgraded the bonds to a speculative credit rating of BB. In addition, the couple did not meet the definition of approved purchasers of bonds set forth by the issuer.
In addition to violating G-19, Tazhibi also failed to deal fairly with his customers in violation of G-17 on fair dealing, FINRA found.
Tazhibi’s suspension, handed down in September, ended on Friday. His attorney did not respond to a request for comment.
