More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Pay-to-Play Rule Violating the pay-to-play rule can result in serious consequences, and RIAs should adopt robust policies and procedures to prevent and detect contributions made to influence the selection of the firm by a government entity.
A Financial Industry Regulatory Authority (FINRA) hearing panel ruled on Wednesday that Long Island-based David Lerner Associates charged excessive markups on municipal bond and collateralized mortgage obligation (CMO) transactions over a two-year period, causing the firm's retail customers to pay unfairly high prices and receive lower yields than they otherwise would have received.
The panel fined Lerner $2.3 million for the markup and related supervisory violations, and ordered the firm to pay restitution of more than $1.4 million, plus interest, to affected customers. The panel also fined its head trader, William Mason, $200,000 and suspended him for six months from the securities industry. The ruling resolves charges brought by FINRA's Department of Enforcement in May 2010.
The panel found that from January 2005 through January 2007, Lerner and Mason charged retail customers excessive markups in more than 1,500 municipal bond transactions and charged excessive markups in more than 1,700 CMO transactions from January 2005 through August 2007.
FINRA rules require that the amount of a markup must be reasonable, taking into account all relevant factors and circumstances, including the type of security involved, the availability of the security in the market and the amount of money involved in a transaction.
In determining the sanctions, the panel took into consideration Lerner's relevant disciplinary history. FINRA said that despite having received a letter of caution raising FINRA's concerns about Lerner's markup practices after a 2004 exam, and after having received a Wells notice concerning the matter in July 2009, Lerner continued its unfair pricing practice. According to FINRA, the panel's decision notes that "in keeping with their unwillingness to accept responsibility, DLA has not taken any corrective measures to improve their fixed income markups policies and practices."