Firm Settles FINRA Charges for Disclosure Failures on Municipal Bond Orders

A firm settled FINRA charges for placing orders for new issue municipal bonds "without disclosing that the orders were for the firm's dealer account."

FINRA found that the firm "submitted at least 189 orders to six underwriters for new issue municipal bonds without disclosing that the orders were for the firm's dealer account." FINRA said the firm also placed at least five orders during retail order periods, falsely presenting them as retail customer transactions. FINRA said the "improper customer priority" "earned the firm "a total of $750,746 in ill-gotten gains."  

FINRA also found that the firm failed to report certain dealer municipal bond transactions to the Real-Time Transaction Reporting System ("RTRS"). Separately, FINRA found that the firm failed to preserve and review approximately 30,000 Bloomberg instant messages related to the new issue bond orders (above).  

Further, FINRA determined that the firm's supervisory system failed to respond to multiple red flags indicating that a representative was "mischaracterizing the Branches to obtain treatment by underwriters as a customer, rather than a broker-dealer." 

As a result, FINRA determined that the firm violated MSRB Rules G-11 ("Primary Offering Practices"), G-14 ("Reports of Sales or Purchases"), G-17 ("Conduct of Municipal Securities and Municipal Advisory Activities"), G-9 ("Preservation of Records) and G-27 ("Supervision"). 

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $275,000 fine and (iii) disgorgement of $750,746 plus interest.