More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- Proxy Voting RIAs are not required to vote proxies on behalf of their clients. However, when an RIA does assume responsibility for voting proxies, the firm’s policies and procedures should help to ensure that votes are cast in the best interest of clients.
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."