FINRA recently announced that it has sanctioned five brokerage firms for unfairly obtaining the reimbursement of fees they paid to the California Public Securities Association from the proceeds of municipal and state bond offerings. The brokerage firms apparently violated fair dealing and supervisory rules of the Municipal Securities Rulemaking Board by obtaining reimbursement for these voluntary payments to pay the lobbying group.
The broker dealers were fined more than $3.35 million and also required to pay a total of $1.13 million in restitution to certain issuers in California.
FINRA announced sanctions against the following firms:
- Citigroup – $888,000 fine and $391,106 in restitution
- Goldman Sachs – $568,000 fine and $115,997 in restitution
- JP Morgan – $465,700 fine and $166,676 in restitution
- Merrill Lynch – $787,000 fine and $287,200 in restitution
- Morgan Stanley – $647,700 fine and $170,054 in restitution
According to the FINRA announcement, FINRA found that between January 2006 and December 2010, the Citigroup, Goldman Sachs, JP Morgan, Merrill Lynch, and Morgan Stanley made payments to California Public Securities Association, an association that engages in a variety of political activities including lobbying on behalf of companies seeking to influence California state government, and requested that those voluntary payments be reimbursed as underwriting expenses from the proceeds of the negotiated municipal and state bond offerings. This practice was unfair as California Public Securities Association’s activities did not bear a direct relationship to those bond offerings and were not underwriting expenses. Also, the broker dealers did not adequately disclose the nature of the fees to issuers and failed to establish reasonable procedures in this area. In fact, according to FINRA, the need for adequate policies and procedures in this area was heightened in light of the nature of California Public Securities Association’s political activities. In addition, Citigroup, Goldman, Merrill Lynch and Morgan Stanley failed to have adequate systems and written supervisory procedures reasonably designed to monitor how the municipal securities associations used the funds that these firms paid.
In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The foregoing information, which is publicly available on FINRA’s website, is being provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.