FINRA Fines Firm for Violations Relating to Auction Rate Securities

FINRA AWC Letter No. 2008013863701

April 14, 2011

FINRA announced a $1.5 million fine (and $425,000 in required returns to customers) against a broker-dealer for its alleged failure to disclose certain compensation received and conflicts of interest in connection with sales of auction rate securities (ARS). The FINRA action alleges that three brokers at the firm failed to disclose that they received compensation for transactions in ARS which they purchased for accounts over which they had discretionary authority. FINRA also found that the brokers "failed to disclose the existence of comparable or similar ARS with higher yields." Among other things, FINRA also noted that the firm failed to deliver certain statements in connection with the ARS purchases, sold 144A securities to unqualified customers, and failed to implement an information barrier with a particular customer. In connection with the action, FINRA also required the firm to repurchase certain ARS from retail customers.

Cross References

FINRA News Release

NASD Rules 2110, 2210, 2211, 2510, 3110, 3010

MSRB Rule G-8, G-17, G-21, G-27, G-32

Exchange Act Rule 17a-3