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December 12, 2013 at 02:41 PM
This week, FINRA fined a muni firm for improperly gifting sports tickets to client representatives and slapped Wells Fargo Advisors for failing to notice that a registered rep was making fund transfers from client accounts to bank accounts that were controlled by her or by a member of her family.
Meanwhile, the SEC hit a London-based hedge fund advisor and its former U.S.-based holding company with a fine of nearly $9 million over internal controls failures and went after a Ponzi scheme in Texas focused on oil and gas investments.
Gift Ticket Program Gets L.J. Hart Fined, Censured
FINRA censured L.J. Hart and Co. of St. Louis and fined the firm $200,000 after finding that it improperly gave sports tickets to municipal issuer representatives associated with its clients to the tune of $183,546.
According to FINRA, the municipal underwriting firm had a ticket-gifting program and bought season tickets for games of various sport teams, as well as tickets for playoff games or additional tickets for regular season games the firm believed municipal issuer representatives would enjoy. The firm gave the tickets to municipal issuer representatives associated with municipal entities that it considered the firm’s customers.
If a municipal entity chose to use another firm’s services, the firm no longer considered that entity a customer, and the municipal issuer representatives for that entity did not receive tickets from the firm. On the other hand, the municipal issuer representatives who were associated with clients that used the firm to underwrite multiple financing projects found themselves the recipients of multiple sets of tickets and more expensive tickets.
The firm’s supervisory system was not designed to keep the firm in compliance with MSRB rules, nor did it properly state the requirements of MSRB Rule G-20. Instead, it ignored the part of the rule that says the exemption for occasional gifts of meals or tickets to theatrical, sporting and other entertainment only applies if such events are hosted by the broker, dealer or municipal securities dealer.
The firm’s written procedures also failed to mention how personnel would be supervised to be sure they did not exceed the $100 value limit per year when giving such perks to anyone in relation to the municipal securities activities of the recipient’s employer. Nor was anyone designated to supervise this limit.
The firm neither admitted nor denied FINRA’s findings, but consented to their entry and to the fine.
London-Based Hedge Fund Advisor to Pay $9 Million on SEC Charges
London-based hedge fund advisor GLG Partners L.P. and its former U.S.-based holding company, GLG Partners Inc., were charged by the SEC with internal controls failures that led to the overvaluation of a fund’s assets and inflated fee revenue for the firms.
The GLG firms, according to the SEC, managed the GLG Emerging Markets Special Assets 1 Fund. From November 2008 to November 2010, GLG’s internal control failures caused the overvaluation of the fund’s 25% private equity stake in an emerging-market coal mining company, resulting in inflated fees to the GLG firms and the overstatement of assets under management in the holding company’s filings with the SEC.
GLG’s asset valuation policies required the valuation of the coal company’s position to be determined monthly by an independent pricing committee. But several times GLG employees got information that made the $425 million valuation for the coal company position dubious. However, policies and procedures were inadequate to insure that the information made it to the independent pricing committee.
Among GLG’s fund managers, middle-office accounting personnel and senior management, no one was sure about who was responsible for elevating valuation issues to the independent pricing committee.
While the firms neither admitted nor denied the charges, they agreed to pay a total of nearly $9 million — disgorgement of $7,766,667, prejudgment interest of $437,679 and penalties totaling $750,000 — and to hire an independent consultant to recommend new policies and procedures for the valuation of assets and test the effectiveness of the policies and procedures after adoption.
