FINRA

Merrill Lynch, Prudential Securities, Pruco and UBS Must pay $2.4 Million in Fines for Mutual Fund Abuses

Published on: February 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) announced today that five major brokerage firms have agreed to pay fines totaling $2.4 million for supervision violations and improper mutual fund sales to thousands of investors. These firms must take remedial steps to prevent such actions in the future and pay amounts estimated to exceed $25 million to their clients because of such practices.

According to FINRA, the violations include sales by these firms of load securities, meaning clients were required to pay commissions, when these investors were eligible to make fund exchanges without paying commissions. FINRA’s press release states that “Class B and Class C mutual fund shares and failure to have supervisory systems designed to provide all eligible investors with the opportunity to purchase Class A mutual fund shares at net asset value (NAV) through NAV transfer programs.”

Prudential Securities must pay an $800,000 fine, UBS Financial Services, Inc. was fined $750,000 and Pruco Securities was hit for $100,000 for improper sales of Class B and Class C mutual fund shares. These firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households. Merrill Lynch, Prudential Securities, UBS and Wells Fargo must take steps regarding customers who qualified for but did not receive the benefit of NAV transfer programs. It is estimated that total remediation to fhese firms’ customers will exceed $25 million.

FINRA Says Ex-Morgan Stanley Stockbroker Misappropriated Nearly $400,000 From 97-Year-Old Widow

Published on: February 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is charging stockbroker John Mullins with misappropriating nearly $400,000 from an elderly widow and her charitable foundation. Esther Weil, a 97-year-old widow, died earlier this month. She was living in a nursing home. Mullins was her stockbroker for over 20 years.

Mullins allegedly tried to conceal his status with his elderly client’s charitable foundation. John and his wife Kathleen were the trustees of Weil’s nonprofit foundation-a relationship that is prohibited by Morgan Stanley’s firm policies. Morgan Stanley employed the Mullins from 2002-2006. The company fired them after it was discovered that they were violating company policies.

John is accused of allegedly misappropriating funds from his employer for improper expenses, making misstatements on his firm’s yearly compliance questionnaires and Form U4, and accepting an unauthorized $100,000 loan from a client.

FINRA, SEC, and NASAA Announce New Initiative for Protecting Senior Investors

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

The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and the North American Securities Administrators Association (NASAA) have announced a new group initiative to protect senior investors from becoming the victims of investment scams.

SEC, NASAA, and FINRA will work with investment advisers and broker-dealer companies to identify effective compliance and supervisory practices involving senior investors. Areas of exploration will include:

• Opening accounts • Training company employees • Marketing practices • Advertising practices • Review of products and accounts • Fulfilling the evolving needs of aging investors • Regularly reviewing products

FINRA Consolidation Results in Fewer Exams for Securities Firms

Published on: December 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Thanks to the consolidation of NYSE and NASD into the Financial Industry Regulatory Authority (FINRA), security firms registered in the United States will now content with fewer regulatory tests. FINRA officials announced the decrease in the number of examinations.

Currently, a lot of firms are required to take a sales practice test and a financial examination with different regulators. Next year, however, the firms will be required to take just one examination that evaluates both finances and sales practices.

FINRA officials will oversee this new test. Brokers will also be given exams on price verification, valuations, proper disclosure procedures, and fees received.

Oppenheimer to Pay $1 Million to Settle FINRA Bogus Data Charges

Published on: November 13, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. says it will pay a $1 million fine to settle charges by the Financial Industry Regulatory Authority that it turned in false information regarding mutual fund breakpoints. The company also has agreed to submit to having an independent consultant conduct an audit regarding how Oppenheimer handles regulatory inquiries. By agreeing to the settlement terms, Oppenheimer is not agreeing to or denying FINRA’s allegations.

Background

FINRA says it initially asked Oppenheimer for the information in March 2003 when the self-regulatory organization (then the NASD) looked at over 2000 broker-dealers who had sold front-end loan funds over a two-year period.

SEC and FINRA Announce Plan to Help Broker-Dealer CCO’s with Compliance Controls

Published on: November 7, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have introduced an initiative that will assist broker-dealer chief compliance officers in maintaining compliance controls that work, creating effective communications about compliance risks, and implementing solid compliance programs at brokerage firms.

Regional and national seminars will be designed to focus on increased compliance practices at brokerage firms to increase investor protection. FINRA and SEC said that this new initiative is similar to the SEC’s current CCOutreach Program for investment company chief compliance officers and investment advisers.

A national compliance seminar is tentatively scheduled for March 2008 at the SEC headquarters in Washington D.C. Regional seminars will be held in cities across the United States.

FINRA Says New Rule Book Consolidating NYSE and NASD Rules Might Not Be Completed Until 2009

Published on: November 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA enforcement chief Susan Merrill announced at a Practising Law Institute Gathering on “Coping with Dealer/Broker Regulation and Enforcement” that the Financial Industry Regulatory Authority rulebook, which consolidates NASD and NYSE Rules might not be completed until the end of 2008 or even into 2009.

Merrill said that the consolidation is causing FINRA to ponder whether different kinds of firms should be regulated differently and whether it makes sense to use principle-based standards more frequently.

Merrill says that different groups, including employees previously with NYSE and NASE, are looking at the different rules and trying to figure out how to best merge the two systems.

FINRA Cautions Investors to Watch Out For “Pump-and-Dump Scams” Using Energy Stocks

Published on: November 1, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA (Financial Industry Regulatory Authority) is warning investors to look out for “pump-and-dump” scams focusing on energy stocks. FINRA says that these scams involve energy stocks that are thinly traded issues from companies that are not well known.

In the alert that it issued on October 23, FINRA says that the purpose of the scams is to increase a stock’s price using misleading or false statements that create a demand for a company’s shares. The people who “pumped” the stock then sell their shares when the stock price is high enough. Investors are then left with stock that are worthless.

In one scam, investors were encouraged to invest in a Texas energy company involved in a business deal with a $23 million Chinese oil monopoly. The backers of the scheme told investors that they would receive huge returns if they invested immediately.

Study Says Securities Arbitrators Often Expunge Investor Settlements from Brokers’ Records

Published on: October 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A recent study conducted by the Public Investors Arbitration Bar Association indicates that securities arbitrators frequently agree to erase past settlements that were paid to investors from brokers’ records. Removing brokers’ settlement payments from their histories could cause future investors to not find out about the brokers’ past misconduct.

The study reveals that 99% of the time, FINRA arbitrators are the ones who suggest expunging these records. Over 70% of these decisions were made without hearings, even though there are new rules in place that say that a record can only be expunged if the complaint is false, erroneous, or did not involve the broker that was accused.

FINRA disagrees with the study results and claims expungements have dropped dramatically since the new rules were put in place in 2004.

New Primary Regulator of Securities Brokerage Firms Is Run Only By Brokerage Firms

Published on: October 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The National Association of Securities Dealers (NASD) recently absorbed the regulatory unit of the New York Stock Exchange (NYSE) and changed its name to the Financial Industry Regulatory Authority (FINRA). Yet nothing has really changed. The primary regulator of securities brokerage firms industry is run solely by … brokerage firms.

There are a number of industry associations which oversee that industry. Yet, no other has the power of the FINRA. The Securities and Exchange Commission (SEC) is charged with the responsibility of policing the securities industry. (The last SEC commissioner appointed by a Democrat left this week leaving only Republican appointees and the Director is a former Republican Congressman, but that is another story.)

In any event, the SEC, the nation’s securities police force, delegates to the securities industry the power to police itself. There is now only FINRA, the rent-a-cop group in charge of that duty. FINRA is run by seven directors. Almost unbelievably, all of the directors of FINRA are representatives of brokerage firms. None are “public” directors.