FINRA Enforcement: Goldman Fined $800,000 for Trade-Through Failures

Morgan Stanley & Co. LLC was censured by FINRA and fined $100,000 after the agency’s findings revealed that the firm failed to supervise the firm’s private wealth management (PWM) investment representatives on their servicing of bank accounts maintained at a nonmember affiliate.

According to FINRA, non-U.S. individuals and entities opened accounts that were maintained at a Swiss affiliate bank of the firm and serviced by the firm’s PWM investment representatives in the U.S. All bank account holders signed portfolio management agreements that explicitly permitted the bank to delegate asset management to the firm.

The PWM investment representatives’ conduct and supervision was governed by the firm’s policies and procedures applicable to PWM offices. However, there were differences between how those bank accounts were supervised compared with accounts maintained at the firm. No separate supervisory system or procedures were in place to specifically govern the supervision of investment representatives’ servicing of the bank accounts.

While neither admitting nor denying the findings, the firm ended the arrangement that had allowed PWM investment representatives to service the bank accounts.

FINRA Bars Former Equity Trader for Insider Trading in Japanese Securities

FINRA recently barred Kenneth Ronald Allen, a former equity trader at First New York Securities LLC, from the securities industry for trading Japanese securities on the basis of material, nonpublic information that he received from a corporate insider.

Cameron K. Funkhouser, EVP of FINRA’s Office of Fraud Detection and Market Intelligence, said in a statement, “Individuals who are registered with FINRA are expected to observe high ethical standards and conduct themselves in accordance with just and equitable principles of trade regardless of where securities are listed.”

FINRA’s investigation found that in September 2010, Allen placed orders using a firm proprietary trading account from New York City to short sell shares of Tokyo Electric Power Co. Inc. (TEPCO), which is listed on the Tokyo Stock Exchange. Allen created a short position in TEPCO shares while he was in possession of material, nonpublic information that TEPCO was close to announcing a secondary public offering of its securities. Allen obtained the information from a consultant whose source was a Tokyo-based employee of Nomura Securities Co. Ltd., a large Japanese broker-dealer, which underwrote the TEPCO offering.

After receiving the inside information, Allen traded in TEPCO shares between Sept. 15, 2010, and Sept. 28, 2010. TEPCO publicly announced the secondary offering on Sept. 29, 2010, and the market price for its shares declined. Allen covered the short position after the announcement, realizing a profit of approximately $206,000.

FINRA found that Allen’s conduct violated FINRA rules to observe high standards of commercial honor and just and equitable principles of trade.

In settling the matter, Allen neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.