FINRA

Puerto Rico Bonds Are at Record Low Prices After FINRA Announces It Is Looking At Transactions

Published on: March 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, Puerto Rico bonds that were issued this month are now at record low prices after the Financial Industry Regulatory Authority announced that it is looking at transactions involving the new securities. The US territory sold $3.5 billion of general obligation bonds, which is the largest junk bond offering in the history of the municipal market.

According to numerous financial news sources, the offering documents for Puerto Rico’s newly issued bonds stated there would be a $100,000 minimum order allowed so that the purchasers of the junk bonds would be limited largely to institutional buyers. Their prospectus says that bonds were to be issued at a $100,000 minimum and “integral multiples of $500,000 in excess thereof” unless Standard & Poor’s, Moody’s Investors Services, and Fitch Ratings raise Puerto Rico’s credit to investment grade. All three credit ratings agencies recently declared the US territory’s credit ratings “junk.”

Nevertheless, many transactions under the $100,000 amount have been reported, despite the lack of an upgrade in the bonds. As a result, scores of Puerto Rico bond transactions issued this month were cancelled. There is also data indicating that some brokers are trading under the $1,000 minimum established by the prospectus.

Non-traded REITS Exhibit Unbelievable Resistance to FINRA Disclosure Rules

Published on: March 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The non-traded real estate investment trusts industry wants to delay the implementation of the Financial Industry Regulatory Authority disclosure rule until the end of 2015. The rule would require that investors be given more accurate data about the valuation of direct participation programs and non-traded REITs.

This should provide investors with a more accurate picture of how much it costs to buy non-traded REIT shares. Currently, the self-regulatory authority’s proposal would put the rule change into effect at the end of 2014, which would be about six months after obtaining Securities and Exchange Commission approval.

Almost all non-traded REIT vendors are independent brokerage firms. Generating close to $20 billion in sales last year, which is twice as much as the year prior, broker-dealers and their representatives have gotten commission boosts due to their typical 7% commission.

FINRA Orders Securities America and Triad Advisers to Pay $1.2M Over Reporting Violations

Published on: March 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Securities America and Triad Advisors $625,000 and $650,000, respectively, for not properly supervising the way consolidated reporting systems were used. Triad must also pay $375,00 in restitution. Even though they are settling, the two firms are not denying or admitting to wrongdoing.

The self-regulatory organization said this inadequate supervision led to statements containing inaccurate valuations that were sent to customers. The two firms are also accused of disobeying securities laws by not keeping appropriate consolidated reports.

A consolidated report is a document that includes information about the bulk of a customer’s financial holdings. The report is a supplement to official account statements.

Fines for FINRA Sanctions Went Down 27%, Reports New Analysis

Published on: March 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a review of Financial Industry Regulatory Authority actions in 2013, fines imposed by the self-regulatory organization dropped by 27% compared to the year before, even though the number of cases during both were almost identical. Sutherland Asbill & Brennan LLP, which completed the review, said that last year FINRA imposed $57 million of fines, compared to $77 million in 2012.

The fine total from 2013 was the lowest imposed since 2010, when the regulator fined member firms and associated individuals $45 million. Also, even though the fines went down, there was 1% less disciplinary actions brought by FINRA at 1,535 actions, compared to the 1,541 submitted made in 2012. Another decline occurred in the number of firms that FINRA expelled-24 in 2013 and 30 in 2012. That said, the SRO did suspend more individuals-670 last year, up from 549 the year before-and bar more persons from 294 in to 429 last year, which is a 46% increase.

Sutherland’s believes the fines went down because many of the cases generated by the financial crisis have been tackled. This means that even with so many cases, these aren’t necessarily resulting in fees that are as high.

Berthel Fisher & Affiliate Fined $775K by FINRA Over Supervisory Failures Involving Non-Traded REITs and Leveraged and Inverse ETFs

Published on: February 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc. are going to pay the Financial Industry Regulatory Authority a combined $775,000 for purported supervisory deficiencies related to leveraged and inverse exchange-traded funds and non-traded real estate investment trusts. The firm settled without deny or admitting to the allegations.

FINRA claims that from January 2008 to December 2012 Berthel Fisher had inadequate written procedures and supervisory systems to deal with the sale of alternative investment products, such as managed futures, non-traded REITs, oil and gas programs, managed futures, business development companies, and equipment leasing programs. The SRO says that the brokerage firm’s staff were improperly trained with regard to state suitability standards, and criteria wasn’t properly enforced in a number of alternative investment sales because the firm did not figure out the correct concentration levels of certain financial instruments.

FINRA also said that from 4/09 to 4/12, Berthel Fisher lacked a reasonable basis for certain ETF sales, resulting from numerous reasons, including a failure to properly review or research non-traditional ETFs before letting registered representatives make recommendations to customers. Inadequate sales training was not provided and some customers suffered losses because the brokerage firm did not monitor investment holding periods.

FINRA Seeks to Limit Definition of Public Arbitrator

Published on: February 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Investment News and The Wall Street Journal, sources in the know say that the Financial Industry Regulatory Authority wants to limit how many brokerage industry insiders can act as arbitrators in investor disputes with broker-dealers and brokers. The amendment would keep anyone affiliated with the securities industry, including lawyers and ex-brokers, from representing themselves in the role of public arbitrator. FINRA’s board of directors will decide whether to approve a proposed rule changes on this matter at a meeting this week.

Under the FINRA arbitration system, there are two arbitarator categories: nonpublic and public. Public arbitrators usually don’t have a current insider industry connection with the securities industry. Meantime, arbitrators that are nonpublic can have current ties, even working as a banker or a broker or securities fraud lawyer.

Usually, there are three arbitrators on a panel presiding over an investor-broker dispute. The panel members are selected from a list of arbitrators. Respondents and claimants go through this list to eliminate those they don’t want on the panel.

FINRA Issues Investor Alert on IRA Rollovers

Published on: January 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has put out an alert to help investors figure out whether an IRA rollover is the right choice. Gerri Walsh, the self-regulatory organization’s senior VP for Investor Education said that comparing investment choices and costs can prevent “unnecessary cracks” to one’s “nest egg.”

FINRA offers 10 tips when deciding about an IRA Rollover:

• Assess your transfer options: do you keep in an ex-employer’s plan, move assets to a new employer’s plan, roll over plan assets into an IRA, or cash out your balance?

Lawyers Say Electronic Communication Retention Will Lead to More Securities Enforcement Actions

Published on: January 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

At a webcast on January 22, lawyers said that the electronic communication issues and the retention of e-mail would be a big part of broker-enforcement by Financial Industry Regulatory Authority and the SEC this year. E-mails are reportedly now a key factor in investigations by the two regulators. Also now subject to retention, supervision, and other requirements are instant messages and any other electronic communications and methods that brokerage firms us to dialog internally, as well as with customers and the public.

Last month, Barclays Capital agreed to pay a $3.75 million FINRA fine for allegedly not keeping all of its electronic messages and improperly storing records in a format that was non-rewritable. Barclays also purportedly did not keep over 3 million instant messages, which violates FINRA and SEC rules, and failed to retain email attachments. Earlier in 2013, LPL Financial (LPLA) was ordered by the SRO to pay $7.5 million for allegedly not adequately supervising e-mails.

Statistics show that electronic communications was the number one enforcement issue for FINRA last year. The self-regulatory organization’s amended Rule 8210 could also lead to additional litigation and enforcement actions over the books and records that it requests from firms and individuals. The change makes clear the degree to which FINRA can inspect and copy the records and books of associated persons and members and gives adjudicators the right to copy and inspect information that are under the control or custody of those that the SRO has jurisdiction over. Due to the fact that FINRA is not a governmental authority, firms are unable to invoke the Fifth Amendment regarding this matter. They also cannot formally oppose a Rule 8210 request to give over the material requested. Doing so can lead to possible disciplinary action.

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

Published on: January 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Spotlight on FINRA: SRO Disciplines Brokerages That Ignore Red Flags, Warns About Retirement Plan Rollover Conflicts, & Investigates for Stock Trade Incentives

Published on: January 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines COR Clearing LLC $1M for Disregarding Red Flags

The Financial Industry Regulatory Association is continuing to crack down on brokerage firms that don’t detect and investigate “red flags” indicating possible suspect activity. Earlier this month it fined COR Clearing LLC $1 million for its purported failure to put into place procedures to detect and report suspect account activity.

The self-regulatory organization said that while the broker-dealer used a “tagged identifier list” to identify the entities and individuals linked to high risk accounts, the list only worked effectively when cross-checked against a demographic AML system, which included customer data that the firm had collected but was maintained by a third-party. However, the DAML database was incomplete because it did not include the names of COR Clearing’s introducing brokers.