WASHINGTON – RBC Capital Markets has agreed to pay $50,000 to settle Financial Industry Regulatory Authority charges that it sold municipal securities below their minimum denominations and failed to report nearly 20,000 muni transactions.
Los Angeles-based Wedbush Securities also settled with FINRA for $20,000 over alleged reporting failures and a former compliance officer at Birmingham, Ala.-based Proequities, Inc. was barred from the market after she allegedly misled FINRA staff.
The two firms and the former compliance officer, Suzette Foster, agreed to their settlements without admitting or denying FINRA’s findings. A Wedbush representative said it is the firm’s policy not to comment on disciplinary proceedings and Foster could not be reached for comment.
A spokesperson for RBC said the firm “cooperated fully with FINRA and [is] pleased to have settled these matters.”
FINRA found that New York-based RBC’s minimum denomination violations occurred between Dec. 1, 2013 and Dec. 31, 2015. During that time, the firm carried out 10 customer transactions that were in amounts below the minimum denomination the issuer had set for the issue, according to FINRA. Minimum denominations for munis generally range from $5,000 to $100,000. Higher minimums may allow an issuer to be exempt from certain disclosure requirements under SEC Rule 15c2-12 on municipal disclosure or can be used as a safeguard against unsophisticated investors purchasing riskier bonds.
FINRA did not specify the minimum denominations RBC was supposed to comply with but said the firm's trading below them violated Municipal Securities Rulemaking Board Rule G-15, which prohibits such activity. The firm also failed to inform its customer in each transaction that the amounts were in amounts below the set minimum denomination. The actions violated MSRB Rules G-17 on fair dealing and G-47 on time of trade disclosure, FINRA said. The firm must pay $30,000 in fines for the minimum denomination failures and is also required to offer to have the sales canceled.
The other $20,000 of RBC’s FINRA fine relates to its failure to report 18,634 municipal bond purchase and sale transactions to the MSRB’s Real-time Transaction Reporting System between Jan. 2, 2008 and March 25, 2016. Roughly 1,500 of those failures occurred because the firm reported block transactions that were to be allocated into separate managed accounts as a single block instead of reporting the allocations as individual transactions, as required, according to FINRA. RBC’s actions violated MSRB Rule G-14 on reports of sales or purchases.
The trade reporting failures FINRA found involving Wedbush occurred between April 1, 2015 and Sept. 30, 2015. During that time, Wedbush failed to report information about 176 purchase and sale transactions involving munis to RTRS within the required 15 minutes of the time of trade, FINRA said. Wedbush also did not properly follow its written supervisory procedures on trade reporting for municipal securities FINRA said, which is a violation of MSRB Rule G-27 on supervision. Wedbush’s $20,000 fine consisted of $15,000 for the reporting violations and $5,000 for the supervision violations.
Foster’s bar from the market is tied to interactions she had with FINRA while she was still employed as chief compliance officer at Proequities and FINRA staff was conducting a review of the firm’s transaction reporting between Jan. 1, 2014 and March 31, 2014. The staff sought documented proof that the firm had been carrying out its supervisory responsibilities during the time period in question and as part of that was in contact with Foster. Foster sent along PDFs of the firm reports showing supervisory reviews for each of the months in question. Each report was dated by hand as being reviewed the in the month following the month for which the report was created, FINRA said. However, FINRA staff noticed that each report had a “Last Updated” date of May 18, 2015, more than a year after the handwritten dates.
Foster then provided a separate set of three PDFs that were spreadsheets with the firm’s muni trading information for the months of January, February, and March 2014. She said in subsequent FINRA testimony that she had created the first set of reports at a later date to more clearly lay out her original reviews of the RTRS system for those months but that the second set of spreadsheets actually represented her initial review, according to FINRA.
However, FINRA staff found that Foster had never accessed RTRS between Jan. 1, 2014 and May 2014, a contradiction of her testimony. Foster later said other firm employees may have created the reports for her.
FINRA found that Foster created and sent false and misleading responses to FINRA staff and that she subsequently gave false and misleading testimony to the self-regulator in violation of FINRA Rules 8210 on provision of information and 2010 on standards of conduct.