The Financial Industry Regulatory Authority has ordered Zions Direct Inc., Zions Bancorp’s (ZION) brokerage unit, to pay $225,000 to settle securities fraud allegations that it failed to disclose conflicts of interest in online certificate-of-deposits auctions. According to the SRO, from February 2007 to November 2008, the Utah broker-dealer failed to make public in its online CD auctions that Liquid Asset Management took part in auctions to retail investors.
FINRA contends that if LAM hadn’t been involved some bidders could have had higher yields in some auctions. Instead, they may have received lower yields.
Zions Direct began “generally” disclosing LAM’s involvement in November 2008 but still failed to mention the relationship between Zions-affiliated banks and the customers that took part in the auctions and any potential conflicts of interest. Issuing banks may have benefited from LAM’s involvement because they otherwise might have ended up paying higher yields on the CDs bought through the auctions.
FINRA also contends that the brokerage firm sent “exaggerated” and “misleading” ads to current and potential customers that promised CD yields that were not realistic and published market clearing yields on its Web site without adequately disclosing that the figures did not typically reflect the closing yields of auctions. According to FINRA acting enforcement chief and executive vice president James Shorris, investment firms have to tell prospective clients and customers about material information related to their services and products.
By agreeing to settle the securities fraud case, Zions Direct is not admitting to or denying the charges. It has, however, agreed to an entry of FINRA’s findings.
Related Web Resources:
Zions Fined $225,000 For Insufficient Disclosure In CD Auctions, Wall Street Journal, August 25, 2010
FINRA Fines Zions Direct $225,000 for Failure to Disclose Potential Conflict of Interest in its Online CD Auctions, FINRA, August 25, 2010
Shepherd Smith Edwards & Kantas LTD LLP represents individual and institutional investors that have lost money because of securities fraud.