finra

FINRA

For Release:
Contact:
Monday, May 11, 2009
Herb Perone (202) 728-8464

 

 

RD Capital Group and Firm President Ordered to Pay $1 Million in Fines, Restitution for Fraudulent Markups of U.S. Treasury STRIPS

Firm President is Also Suspended

 

Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Ramon Luis Dominguez, President of RD Capital Group in Puerto Rico, to pay restitution of $950,000 plus interest to three customers victimized when Dominguez and the firm charged undisclosed, excessive and fraudulent markups on the sale of United States Treasury STRIPS.

 

Dominguez and the firm were fined $50,000. Dominguez was suspended as a principal for 30 days and in all capacities for five business days. Dominguez and the firm agreed to the sanctions to resolve charges first brought against them in a FINRA complaint in November 2007.

 

"Brokers are required to charge fair commissions and mark-ups when filling customer orders, taking into account all relevant circumstances associated with the transactions," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "The undisclosed markups charged in this case — which involved U.S. Treasuries, the most liquid securities available in the market — were so excessive as to be fraudulent."

 

FINRA found that between August 2005 and October 2005, RD Capital and Dominguez sold over $34 million in U.S. Treasury STRIPS to the three customers, charging total markups of $1,289,727. STRIPS, an acronym for Separate Trading of Registered Interest and Principal Securities, are zero-coupon U.S. Treasury fixed-income securities generally sold at a significant discount to face value. FINRA found that Dominguez failed to disclose to his customers the amounts of the markups, which ranged from 3.5 percent to 6.2 percent. These markups were excessive and fraudulent because the amount charged was greater than the amount warranted by market conditions, the cost of executing the transactions and the value of the services rendered to the customers.

 

FINRA rules require firms to ensure that customers are fairly charged for these types of transactions, taking into consideration all relevant factors, including the expense associated with effectuating the transaction; the reasonable profit earned by the broker or dealer; the expertise provided by the broker or dealer; the total dollar amount of the transaction; the availability of the financial product in the market; the price or yield of the instrument; the resulting yield after the subtraction of the markup compared to the yield on other securities of comparable quality, maturity, availability, and risk; the role played by the broker or dealer. 

 

In concluding these settlements, RD Capital and Dominguez neither admitted nor denied the allegations in the complaint.

 

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 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.

 

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing 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 firms.

 

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