Five Broker-Dealers Fined by FINRA Over Allegedly Misrepresenting Commissions as Fees to Clients

The Financial Industry Regulatory Authority has issued fines against broker-dealers Pointe Capital, Inc., John Thomas Financial, First Midwest Securities, Inc., A&F Financial Securities, Inc., and Salomon Whitney LLC for allegedly mischaracterizing part of their commission charges to clients and calling them service handling fees, This caused the amount of total commissions that clients were charged to be understated. As a result, the fees for handling-related services ended up costing clients more.

FINRA says trade commissions and fee schedules should clearly reflect the actual commission charges, which shouldn’t be disguised.

Among the sanctions issued by FINRA:

• A $60,000 fine against Salomon Whitney LLC. FINRA accused the financial firm is accused of charging clients handling service fees of up to $69.95/trade plus commission. FINRA contends that Salomon Whitney did not tell its Connecticut clients that part of the transactional handling fee was a profit to the financial firm, the fee was not determined by the costs of handing a specific transaction, and certain clients were fined lower fees. FINRA believes the handling fee charged by Salmon Whitney was unreasonable. By agreeing to settle, the financial firm is not denying or admitting to the findings.

• First Midwest Securities, Inc. was fined $150,000. The financial firm is accused of charging clients up to $99.75/trade plus commission. FINRA says that this “handling fee” was in fact a commission and not reasonably connected to any direct handling services conducted by First Midwest Securities. The SRO notes that some customers even paid handling fees that were double of what other First Midwest Clients paid. FINRA also says that First Midwest Securities committed other violations, including having inadequately written supervisory procedures and “unfair and unreasonable” markdowns and markups. The financial firm has settled the securities case but is not admitting to or denying FINRA’s allegations.

• FINRA charged A&F Financial Securities, Inc. a $125,000 fine for charging clients an up to $65/trade handling fee, as well as commission. FINRA says that A & F acted inaccurately and improperly. FINRA also accused the financial firm of failing to comply with continuing education requirements, having inadequate supervisory system and procedures, and not properly assessing its training needs or developing and executing a written training plan. A & F also admitted to the findings without denying or admitting to them.

• FINRA fined John Thomas Financial A $275,000 fine for its up to $75/trade handling fee plus commissions. The SRO is also alleging other violations, including deficiencies related to complaint reporting, supervisory controls and certifications, and branch office supervision and recordkeeping. FINRA says the broker-dealer effected key changes to its business without obtaining its approval. John Thomas Financial agreed to settle but did not deny/admit to the findings.

• Pointe Capital, Inc. was fined $300,00 for charging an up to $95//trade handling fee plus commission. FINRA contends that seeing as the “handling” charge wasn’t reasonably linked to actual handling-related services/expenses, the clients were actually charged another commission. Pointe Capital has settled the case.

FINRA Fines Five Broker Dealers for Improper Handling Fees, FINRA, September 7, 2011

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FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisor, Stockbroker Fraud Blog, September 13, 2011
Financial Industry Regulatory Authority Alerts Investors About Gold Stock Scams, Stockbroker Fraud Blog, August 25, 2011
Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Stockbroker Fraud Blog, July 16, 2011
Broker misconduct can cause investors to unnecessarily lose money. If you believe that broker fraud caused you to lose the money you’ve invested, contact our securities fraud law firm today and ask for your free consultation.