FINRA

J.P. Turner & Co. Will Pay $250,000 to Settle FINRA Charges Related to Inadequate Supervision of Stock Trade Commissions

Published on: November 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority and J.P. Turner & Co. have reached a settlement agreement over charges that the broker-dealer failed to put in place a proper supervisory system for making sure that its registered representatives charged clients reasonable and fair commissions on stock trades. By agreeing to settle, JP Turner is not admitting to or denying the charges involving inadequate supervision.

FINRA says that between January 2002 and March 2005, JP Turner failed to take certain relevant factors into consideration when determining how much commission they should charge clients for equity securities transactions. Instead, FINRA says that the broker-dealer let its brokers charge commissions of up to 4.5% on nearly every stock trade, with discretion on what commission to charge solely limited by whether the security’s price was higher or lower than $25/share. If the security’s price was under $25/share, FINRA says that JP Turner representatives could charge commission of up to 4.5%. They could charge commissions of up to 3.5% if the security price was higher than $25.

FINRA requires brokerage firms to put in place systems and “reasonable procedures” for determining what commission fee a customer should be charged for such transactions, while taking into consideration certain relevant factors. The SRO’s mark-up policy provides a list of these relevant factors, including: the kind of security, the price of the security, the transaction size, the order execution cost, and the availability of the security.

During the review period, FINRA says that 91% of JP Turner’s transactions involved securities priced under $25/share. While the broker dealer’s trading manager was in charge of reviewing and approving trades to make sure charges were reasonable and fair, the SRO says the reviews actually consisted of checking transactions to make sure that commissions did not go above the company’s 4.5% and 3.5% guidelines.

As part of its settlement with FINRA, JP Turner will pay $250,000. The broker-dealer has also agreed to retain an independent consultant who will evaluate for adequacy the company’s systems, policies, procedures, and training related to FINRA’s fair price ruling.
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SunTrust Investment Services to Pay $700,000 Fine to Settle FINRA Charges of Excessive Commission and Supervisory Violations Involving Fee-Based Brokerage Business

Published on: October 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has announced that SunTrust Investment Services Inc. has agreed to pay a $700,000 fine to settle allegations that it engaged in supervisory violations involving its fee-based brokerage business and charged excessive commissions on low-priced stocks. By agreeing to settle, the investment firm is not admitting to or denying the charges.

SunTrust terminated its Portfolio Choice accounts, which were fee-based accounts, in 2006. The charges by FINRA involve the period between November 2002 and December 2005 when SunTrust opened more than 2,644 Portfolio Choice accounts without properly evaluating whether the accounts were the appropriate fit for customers. According to FINRA, SunTrust neglected to properly monitor the Portfolio Choice accounts to make sure that they continued to be the appropriate account choice for clients.

FINRA found that at least 36 Portfolio Choice accounts that did not engage in any trades for at least eight quarters-yet these accounts were charged more than $129,000 in fees during the last four quarters. FINRA also says that a number of SunTrust Portfolio Choice clients paid an asset-based fee and transaction commission on the same assets.

FINRA was able to identify over 900 incidents when SunTrust neglected to exclude a customer asset that was purchased with a commission from the asset base that is used to determine the account fee. The error resulted in customers being charged twice, leading to about $437,500 in commissions and excess fees for SunTrust clients.

FINRA also accused the investment firm of acting inappropriately when it let a number of customers keep their accounts and pay for them even though they had not traded for years. Between January 2002 and September 2, 2005, FINRA says SunTrust did not establish a supervisor system that could make sure that registered representatives would charges clients fair commissions on securities transactions. The firm used an automated commission system that charged commission of more than 5% when low quantities and/or low-priced stocks were sold or purchased. Because of this, some clients were billed excess commissions nearing $100,000 in total.

Also as part of its settlement, SunTrust said it would certify that it returned $713,362 in interest and fees to clients that were affected by the alleged violations. FINRA says it took this voluntary refund into account when assessing its fine against SunTrust.

Related Web Resources:

SunTrust Investment Services

FINRA
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Banorte Securities International Agrees to $1.1 Million Fine Over Charges It Recommended Class B Mutual Fund Shares Instead of Class A

Published on: October 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Banorte Securities International, Ltd. has agreed to a $1.1 million fine to settle charges that it recommended to customers that they buy Class B off-shore mutual fund shares even though they would have benefited more financially by buying Class A shares. The Financial Industry Regulatory Authority announced the settlement agreement last week.

By agreeing to settle, Banorte is not admitting to or denying the charges. The company also agreed to a plan that would address more than 1,400 transactions involving accounts in over 300 customer households.

Banorte had been accused of having inadequate supervisor systems to oversee the sales of off-shore mutual fund shares, including guidelines that failed to properly advise registered representatives that Class A share purchases eligible for front-end loans were more affordable than Class B Shares.

According to FINRA enforcement head Susan L. Merrill, firms are obligated to consider all share classes and pricing features that would most benefit a customer-regardless of whether or not that clients reside in the United States or abroad. The majority of Banorte’s customers reside in Mexico. Merrill also said that firms must take all relevant factors into considerations when making mutual fund recommendations to clients.

Class A Shares

These mutual fund shares come with a front-end sales charge and lower ongoing fees that are asset-based.

Class B Shares

While these mutual fund shares usually do not come with a front-end sales fee, their asset-based fees are usually higher than Class A Shares’ fees.

FINRA alleges that from 2003 until May 2004, the majority of Banorte mutual fund sales involved Class B shares even though investing in Class A Shares could have resulted in higher returns for clients.

Related Web Resources:

FINRA Fines Banorte Securities International $1.1 Million for Improper Sales of Class B Mutual Fund Shares, FINRA, October 16, 2008 Continue Reading ›

Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Ray Londo, Londo Financial Group, and Linsco Private Ledger For Improper Lending/Borrowing of Client Funds

Published on: October 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Securities fraud attorneys at the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP are investigating claims for clients of Ray Londo, Londo Financial Group, and Linsco Private Ledger (LPL). The firm is asking any clients of Ray Londo that lent him or anyone else in his company money to call (800) 259-9010.

According to the Financial Industry Regulatory Authority, Ray Londo was fired from LPL this year because of his failure to abide by company policy related to borrowing from or lending money to clients. FINRA registered representatives are not supposed to borrow money from clients or accept checks issued directly to a broker.

FINRA Rule 2370

FINRA Orders Charles Schwab to Pay $542,340 Over Short-Term Bond Fund Investor Claim

Published on: October 14, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this month, a Financial Industry Regulatory Authority panel found Charles Schwab Corp. liable for $542,340 in an investor claim against the company over its YieldPlus short-term bond fund. This case is one of numerous individual arbitration and class action lawsuits against the San Francisco-based investment firm because of the fund.

The Schwab YieldPlus Fund had assets worth over $13 billion last year, but the fund suffered major losses this year because of mortgage-backed securities. At the end of last week, the fund’s assets were worth $432 million.

In this latest arbitration claim, investor Jeffrey Nielson accused Schwab and representative Darin Beckering of purposely misleading him when he purchased the ultrashort-bond fund because they did not fully disclose the extent to which the fund would be exposed to the subprime-mortgage market. Nielson also claims he was never informed that the Schwab YieldPlus Fund was a proprietary fund.

FINRA Rolls Out New Arbitration Process for Auction-Rate Securities Claims

Published on: August 21, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says it has set up an arbitration process designed to resolve claims involving auction-rate securities. Parties now have the option to have their claims reviewed by an arbitration panel with members that are not connected with any firm that may have recently sold the securities.

FINRA says the process was developed following the system it set up for Citigroup’s settlement with the Securities and Exchange Commission. Earlier this month, Citigroup Inc. reached an agreement with state and federal regulators to redeem $7.3 million in illiquid auction rate securities that retail investors had purchased, as well as pay $100 million in fines. The agreement was to settle charges over misconduct related to sales practices.

FINRA Dispute Resolution President Linda Fienberg says it is only fair that all investors with auction-rate securities claims be given the opportunity to resolve their disputes in the same way. She said that FINRA would work hard to put the process in place so that claims wouldn’t be delayed unnecessarily. Persons that since January 1, 2005 have sold auction-rate securities, worked for a company that sold the securities, or supervised the selling of the securities cannot be on the panels.

FINRA Creates Process for Arbitrations Involving Auction Rate Securities, Marketwatch.com, August 7, 2008
Citigroup Returning $7 Billion To Auction-Rate Securities Investors, The Star, August 8, 2008
FINRA
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FINRA Pilot Program Offers Up All-Public Arbitration Panel to Hear Investor Claims

Published on: August 8, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global, Merrill Lynch, Wachovia Securities, UBS, Charles Schwab, and Morgan Stanley have volunteered to participate in a Financial Industry Regulatory Authority pilot program that would allow investors to have their cases heard by a panel consisting of three public arbitrators. Currently, investors have the option of having their cases dealt with by a panel made up of two public arbitrators and one non-public arbitrator.

Investors that choose to participate in the pilot plan and the firm they have filed a claim against will be given the same three arbitrator lists that those involved in regular arbitration proceedings would receive. The parties can strike the same number of names from the lists and rank according to preference the names of arbitrators they are willing to have on the panel. Parties participating in the pilot can cross out the names of all non-public arbitrators.

Except for Charles Schwab, all of the firms will submit 40 arbitration cases annually for the duration of the two-year program. Schwab will refer 10. However, the decision of whether to avail of this new panel model will be left to the investor. The pilot is available for eligible claims filed after October 6.

The program’s results will be assessed, including who decides to participate in the pilot, who decides to avail of an all-public panel, the duration of the hearings, and the outcomes of both pilot and non-pilot claims. FINRA CEO Mary Shapiro says the pilot “better serves and protects the interests” of investors.

“This is really a political move,” says Securities Arbitration attorney WIlliam Shepherd. “An outcry from consumer advocates has resulted in a bill Congress to make ‘pre-dispute arbitration’ clauses in consumer contracts un-enforceable. Some lawmakers want investors to be included as consumers protected by the bill.

“Wall Street brokerage firms are lobbying hard to exempt themselves from this mandatory arbitration ban,” adds Shepherd. “Despite its name, FINRA is the former National Association of Securities Dealers, a non-profit corporation owned by brokerage firms. FINRA is attempting to show Congress it is willing to reform securities arbitration rather than end it. Doing away with the ‘industry arbitrator’ is one of the so-called reforms it is proposing.”

Related Web Resources:

Test Lets Investors Pick Form of Arbitration Panel, The Wall Street Journal, July 25, 2008
FINRA to Launch Pilot Program to Evaluate All-Public Arbitration Panels, BusinessWire.com, July 24, 2008
FINRA
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E*Trade Securities LLC, TradeStation Securities Inc. and CIBC World Markets Corp. Face FINRA Fines For Failing to Accurately Report Equity Securities Order Information

Published on: May 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

E*Trade Securities LLC, TradeStation Securities Inc. and CIBC World Markets Corp. have collectively been fined $1.6 million for their failure to fulfill their obligation to accurately report data about equity securities orders and ensure compliance with applicable Financial Industry Regulatory Authority regulations.

FINRA announced the fines earlier this month. Along with the announcement, FINRA’S Market Regulation Department stressed how it is the firms’ responsibility to vigilantly monitor the thoroughness and accuracy of information that they give to regulators.

FINRA mandates that member firms must record information about NASDAQ listed equity securities orders, including when they are originated, received, sent, executed, canceled, or modified. All data must be electronically recorded and sent to OATS, FINRA’s Order Audit Trail System. The information is critical because it lets FINRA recreate an order’s life cycle and helps the SRO regulate more effectively.

16 State Farm Entity Representatives Settle FINRA Test-Taking Sanctions

Published on: April 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority announced that 16 current and-ex State Farm VP Management Corp. registered representatives have settled charges of alleged misconduct regarding FINRA’s Continuing Education Requirements for taking tests. FINRA says that the representatives have agreed to fines ranging from $5,000 to $10,000 and suspensions from 30 days up to six months in length. One person agreed to a ban from working as a principal.

FINRA says that 9 of the 16 representatives were supervisors that allowed or directed subordinates to take State Farm’s ‘Firm Element’ proficiency test for them. One supervisor told a subordinate to take the test for other reps. The other six registered representatives that settled were the ones that took the test for others.

The SRO says State Farm did not know about the misconduct and self-reported after it discovered that there were irregularities taking place in one of its regions. State Farm began investigating the incidents. It then expanded its probe nationally and reported its findings to FINRA.

ARS Failures at Brokerage Firms So Bad Even Their Own Association is Critical!

Published on: April 2, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) conjures thoughts of jack-booted cops looking to “perp-walk” those who take advantage investors. Yet, FINRA is just the new name of the National Association of Securities Dealers. The NASD was, and FINRA is, a non-profit organization of all securities dealers, with a structure similar to a country club, which fines or expels those who embarrass its membership.

Yet, even FINRA is critical of its members for mishandling auction rate securities (ARS). For example, in a press release, FINRA acknowledges that “Investors who purchase ARS are typically seeking a cash-like investment that pays a higher yield than money market mutual funds or certificates of deposit.” This confirms, despite objections by firms, that investors believed they were getting liquid instruments, not 20 to 30 year obligations or even “no maturity” preferred shares

“If you need your money in a hurry, loss of liquidity is a financial hardship,” states John Gannon, FINRA’s Senior Vice President for Investor Education. “We want investors who have been affected by the recent auction failures to know what options are available to them.”