finra

FINRA

For Release:
Contacts:
Thursday, December 13, 2007
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464

 

 

FINRA Fines J. P. Morgan Securities $500,000 for Failing to Disclose Use of Payments to Consultants to Obtain Numerous Municipal Securities Offerings

Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) today announced that it has fined J.P. Morgan Securities, Inc. $500,000 for failing to disclose to the Municipal Securities Rulemaking Board (MSRB) that it had used consultants to obtain numerous municipal securities offerings and had made payments to consultants connected to particular offerings. FINRA is responsible for enforcing MSRB rules.

J.P. Morgan inaccurately stated in its filings with the MSRB that no municipal securities business had been obtained by its consultants and that it had made no payments to consultants connected with particular transactions. In fact, FINRA found, during the period from January 2002 through June 2004, J.P. Morgan used 16 different consultants to obtain at least 70 separate underwritings and paid at least $750,000 to six consultants connected to particular transactions.

"The action announced today demonstrates FINRA's commitment to enforcing rules that are important to the integrity of the municipal securities market," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "The failure to report payments to consultants for specific municipal business undermined the disclosure scheme in place at the time the reports were made. MSRB rules no longer allow such payments at all."

During the time period at issue in this case, MSRB Rule G-38 required firms to disclose in quarterly filings with the MSRB any municipal securities business obtained or retained by a consultant. The rule also required firms to disclose payments made to consultants connected to particular municipal securities offerings. The rule is intended to address potential abuses in connection with the awarding of municipal securities business. It was revised in August 2005 to prohibit payments to any person not affiliated with a firm to solicit municipal securities business on behalf of the firm.

FINRA found that from Jan. 1, 2002 through June 30, 2004, J.P. Morgan made extensive use of consultants in connection with its municipal securities business. During that period, J.P. Morgan paid a total of $7.15 million to approximately 40 consultants. J.P. Morgan disclosed the identities of the consultants it used to communicate with issuers, and the total amounts it paid to these consultants, to the MSRB. However, despite its extensive use of consultants, J.P. Morgan reported in 10 separate quarterly filings with the MSRB that the amount of municipal securities business obtained or retained by the consultants was nothing, and that the firm had paid nothing to consultants connected to particular municipal securities transactions. But FINRA found that in fact, J.P. Morgan had repeatedly used consultants to obtain or retain particular municipal securities business and had made numerous payments to consultants connected to particular transactions. FINRA found that J.P. Morgan had used at least 16 consultants to obtain at least 70 municipal securities offerings, and had made at least six payments to consultants, totaling $750,000, connected to particular municipal securities business.

FINRA also found that J.P. Morgan violated MSRB rules by failing to maintain adequate supervisory procedures relating to the disclosure of the use of, and payments to, consultants as required by MSRB rules.

In settling this matter, J.P. Morgan neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2006, members of the public used this service to conduct more than 4.7 million searches for existing brokers or firms and requested more than 207,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.finra.org/brokercheck. Investors can also access this service by calling (800) 289-9999.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms.

For more information, please visit our Web site at www.finra.org.