Too Much Volume:
The Financial Industry Regulatory Authority (FINRA) fined 19 broker/dealers in January a total of $2.8 million for substantially overstating their advertised trade volume to three private service providers. These service providers made the volumes available to market participants, including in the form of rankings of the most active broker/dealers by security. “Consistent with the obligation to report accurate trades to FINRA, when firms provide their trade volume to third-party vendors for dissemination to market participants, it is critically important that firms take appropriate steps to ensure that their advertised trade volume is accurate,” said Thomas Gira, FINRA executive vice president, and head of the Department of Market Regulation. Eight firms were fined $200,000, six were fined $150,000, one firm was fined $100,000 and four firms were fined $50,000 each. None of the firms admitted or denied the charges in settling with FINRA.
Double Dipping No-No:
Sanders Morris Harris Capital (SMH) of Houston was fined $450,000 for failing to adopt adequate supervisory procedures to handle its prime brokerage and soft-dollar services to hedge funds. According to a FINRA statement, SMH made $325,000 in improper soft-dollar payments to a hedge fund manager. Additionally, the firm failed to draft and distribute hedge-fund sales material that adequately disclosed risks to hedge fund investors. Two SMH brokers that managed hedge funds were also allowed to improperly share commissions from trading contrary to offering document disclosures. The brokers, Michael Rosen and Jack Seibald, who managed SMH's prime brokerage services business while also managing a hedge fund that traded through SMH, were fined $100,000 and given 20-day suspensions. “As broker/dealers increasingly provide services to hedge funds, they need to carefully tailor their supervisory systems and procedures to ensure they guard against conflicts of interest that result in securities law violations,” said Susan Merrill, FINRA's chief of enforcement. “SMH's inadequate procedures resulted in the firm making soft-dollar payments without a reasonable inquiry into red flags — indicating the payments were improper.”
A Squeeze For A Squeeze
A New Jersey family is suing Lehman Brothers to the tune of $1.14 billion for allegedly putting $286 million of their assets into so-called “auction rate” securities that have been slammed by the current credit squeeze.
Brian and Basil Maher, brothers who sold their family's marine container company in 2007, say Lehman ignored their requests to put the money in short-term, liquid assets, according to the brothers' complaint to FINRA. Lehman disputes the Maher's accusations, which name six Lehman employees as defendants in the suit.
In its complaint to FINRA, the Maher's are asking Lehman to buy back the $286-million portfolio of illiquid debt that Lehman created for them, as well as to pay them an additional $857 million in punitive damages, plus legal costs and interest.
