Among recent enforcement actions taken by FINRA were the censure, fine and order to pay restitution of a firm that charged its customers bogus markups; censure and fine of a firm over supervisory failures related to nontraditional ETFs; censure and fine of a firm on short sale violations; and censure and fine of another firm over supervisory failures.
Morgan Keegan Censured, Fined Over Nontraditional ETFs
Memphis, Tenn.-based Morgan Keegan & Co. was censured and fined $365,000 on findings of failure to establish and maintain a supervisory system to achieve compliance in connection with the sale of nontraditional ETFs in accounts where the firm provided brokerage services.
The firm, now part of Raymond James, neither admitted nor denied those findings, as well as findings that it failed to adequately train registered representatives and supervisors regarding nontraditional ETFs. Instead, the firm supervised nontraditional ETFs the same as it did traditional ETFs, until the issuance of FINRA’s June 2009 Regulatory Notice. The firm also allowed some of its registered representatives to recommend nontraditional ETFs without having performed reasonable diligence regarding their risks and features.
Max International Censured, Fined, Ordered to Pay Restitution
FINRA came down hard on Max International Broker/Dealer Corp. In addition to censure and a fine of $335,000, the firm was ordered to pay $482,111.27, plus accrued interest, in restitution to its customers. The firm appealed FINRA’s decision to the NAC, but later withdrew the appeal.
According to FINRA’s findings, Max International willfully charged fraudulent, excessive, undisclosed markups to customers who bought large volumes of penny stocks in the firm’s proprietary account. In addition, it did not record trade details on order tickets or on other records, did not accurately record sale terms, and did not report trades as required, keeping both customers and regulators from discovering the fraudulent markups.
Numerous other failures in recording, reporting and blotter creation contributed to keeping prices, commissions, and other details of transactions obscured. Other failures cited in FINRA’s findings were failures in electronic storage media (ESM) use, including the moving, changing and/or deletion of electronic files, reuse of backup tapes, and a lack of compliant maintenance of e-mail communications.
There were also failures to enforce supervisory procedures or to preserve evidence of those procedures’ testing and verification; failure to identify the CCO on Form BD in a timely manner; and late filing of the firm’s annual certification. FINRA Censures, Fines ITG on Short Sale Violations