|Citigroup Global Markets, Inc. Action|
Goldman, Sachs & Co. Action
J.P. Morgan Securities LLC Action
Merrill Lynch, Pierce, Fenner & Smith Incorporated Action
Morgan Stanley & Co. LLC Action
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that it has sanctioned five firms a total of more than $4.48 million for unfairly obtaining the reimbursement of fees they paid to the California Public Securities Association (Cal PSA) from the proceeds of municipal and state bond offerings. The firms 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 firms were fined more than $3.35 million and are required to pay a total of $1.13 million in restitution to certain issuers in California.
FINRA sanctioned the following firms:
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Issuers are entitled to know what they are paying for and why. It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals."
FINRA found that between January 2006 and December 2010, the firms made payments to Cal PSA, 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 Cal PSA's activities did not bear a direct relationship to those bond offerings and were not underwriting expenses. Also, the firms did not adequately disclose the nature of the fees to issuers and failed to establish reasonable procedures in this area. In fact, the need for adequate policies and procedures in this area was heightened in light of the nature of Cal PSA'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.
FINRA's investigation was conducted by Carrie Dunican and Kristina Juntunen under the supervision of Gina Petrocelli and Susan Light with the assistance of Malcolm Northam and Cynthia Friedlander.
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 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
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 effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all 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 firms. For more information, please visit www.finra.org.