The Financial Industry Regulatory Authority took disciplinary actions against several financial services firms in June over various violations, according to its August report.
The companies neither admitted nor denied the findings.
Newport Coast Securities Inc. was expelled from FINRA membership, fined $403,000 and ordered to pay $853,617.04 plus prejudgment interest, jointly and severally, in restitution to customers. The actions followed findings from the Securities and Exchange Commission that the firm, through its representatives, excessively traded in customer accounts. Regulators also found that the firm engaged in churning by managing its customers' accounts for the purpose of generating commissions while disregarding its clients' interests.
Mizuho Securities USA LLC was fined $150,000 after FINRA found that the firm overstated its trading volume in numerous securities it had advertised through Bloomberg LP as a result of system-related issues connected to its third-party order management system. Separately, the order management system used by the company's Japan broker/dealer desk also had a flaw that caused duplicate advertisements of the trading volumes of multiple customer orders in the same symbol that the firm had combined into a single manual order and executed at a single average price. Additionally, FINRA found that Mizuho Securities failed to establish and maintain a supervisory system and written supervisory procedures that would have helped the firm comply with the regulatory requirements that govern the accuracy of advertised trading volumes.
FINRA levied a $450,000 fine on Electronic Transaction Clearing Inc. over findings that it failed to meet customer protection requirements for its customer and proprietary business, including hindsight deficiencies. The regulator found that the firm failed to make required reductions to certain debit balances when calculating reserves in customer and proprietary accounts of broker/dealers, causing the customer and proprietary accounts of broker/dealers' reserve accounts to be underfunded. This resulted in hindsight deficiencies of $19.3 million and $23 million in the customer reserve account and $46.8 million and $12.8 million in the proprietary accounts of the broker/dealers reserve account.
SagePoint Financial Inc. was fined $300,000 and ordered to pay $1.3 million, plus interest, in restitution to customers. The regulator found that SagePoint failed to establish and maintain a supervisory system and failed to establish, maintain and enforce written supervisory procedures that were reasonably designed to supervise the suitability of representatives' recommendations to customers for early rollovers of unit investment trusts. The firm's written supervisory procedures were found to not cover early rollovers or series-to-series early rollovers or otherwise provide guidance to its supervisors about how to monitor for potentially unsuitable patterns.
FINRA fined Two Sigma Securities LLC $225,000 after it found that the company engaged in certain short-sale transactions without borrowing or entering into a bona fide agreement to borrow the securities, or having reasonable grounds to believe they could be borrowed, by the delivery date of such securities.
J.P. Morgan Securities LLC was fined $325,000 and ordered to pay $333,619.34, plus interest, in restitution to customers. The regulator found that the firm failed to establish and maintain a supervisory system in line with applicable FINRA rules in connection with its sale of volatility-linked exchange-traded products. Although the firm was aware of the unique characteristics of such products, it made them available for solicited purchases without having a reasonable system in place to ensure that its brokers and customers understood the nature and characteristics of these products or the risks inherent in holding them for long-term periods, according to the findings.
Moors & Cabot Inc. was fined $250,000 after failing to disclose in writing to customers about $7.5 million in compensation it earned for trades in preferred securities effected in customers' accounts. According to the findings, Moors & Cabot purchased preferred shares from one firm customer and then sold those shares on the same day to a different firm customer, usually within minutes. The firm customers who bought preferred shares from the firm paid a higher price than the firm paid to acquire them. The regulator also found that the firm failed to fully and promptly route marketable limit orders that its trading desk received from firm customers by telephone because the trading desk was manually processing the orders.