FINRA Sanctions Moors & Cabot Inc. for Failure to Disclose $7.5 M in Compensation
According to the Financial Industry Regulatory Authority (FINRA)on June 25, the regulator issued a Letter of Acceptance Waiver and Consent (AWC) to Moors & Cabot Inc., LLC (#CRD #594, Boston, Massachusetts) in which the firm was reportedly censured and fined $250,000. The firm reportedly consented to the sanctions without admitting or denying the findings.
FINRA says that the firm failed to disclose in writing to customers approximately $7.5 million in compensation it earned for trades in preferred securities effected in the customers’ accounts. The findings stated that the firm acted in a principal capacity, purchasing preferred shares from one firm customer, and then selling those shares on the same day to a different firm customer, often within minutes.
The firm customers who purchased preferred shares from the firm reportedly paid a higher price than the firm paid to acquire them from the selling customer. Although the firm retained the difference between the two prices as its compensation, it treated the transactions as if they were bonds and did not disclose its compensation on the trade confirmations the customers received.
Moors & Cabot also reportedly incorrectly disclosed the use of an average price on trade confirmations sent to its customers. Due to a programming error in the firm’s order management system, it issued trade confirmations to customers reflecting an average price when, in fact, the order price was the result of a single execution.
Further, FINRA stated that the firm committed trade reporting violations and failed to create and maintain required books and records and reportedly failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with the rules governing the recording of order times, and failed to enforce its WSPs regarding the disclosure of compensation on customer confirmations.
For more information on FINRA’s findings please see FINRA Case #2014042444001
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