The Financial Industry Regulatory Authority disclosed disciplinary actions taken against MBSC Securities Corp., Maxim Group LLC and D.A. Davidson & Co. for violations of certain rules and regulations.
On Oct. 18, MBSC Securities, a unit of Bank of New York Mellon Corp., was censured and ordered to pay $971,289.07, plus interest of $242,955.64, in restitution to customers. The sanctions were based on findings that the company processed, without any review or verification, fee payment requests made by third-party advisers, which exceeded the amounts to which they were entitled under existing management agreements and fee schedules. As a result, the company disgorged $971,289.07 from customer accounts to the advisers. Also, according to the regulator, the company lacked procedures for the review of instructions from investment advisers or other third parties appearing to act on behalf of customers and that procedures relating to the transmittal of funds from customers to third-party accounts were not verified.
The company did not admit or deny the findings but consented to the sanctions.
On Oct. 18, FINRA issued a letter of acceptance, waiver and consent in which JPMorgan Chase & Co. unit J.P. Morgan Securities LLC was required to confirm that it engaged in a risk-based review of a client-facing third-party vendor and that the company rectified any issues identified and implemented systems, procedures and policies reasonably designed to gain compliance with FINRA and National Association of Securities Dealers rules.
According to the regulator's findings, the company discovered that the vendor was not rebalancing certain accounts and that upgrades by the vendor led to accounts not being rebalanced at the appropriate time. The vendor also shifted to a new billing platform, because the firm did not conduct a test after technological changes and also did not have supervisory procedures in place. Many of the billing errors were not detected, and erroneous fees of approximately $3.1 million were assessed in more than 150,000 accounts because the company failed to monitor how the vendor calculated fees and rebates.
The company had to pay $4,620,140 to the affected customers. It did not admit or deny the charges but consented to the sanctions.
On Oct. 19, Maxim Group was censured, fined $65,000, and ordered to pay $167,780.49, plus interest, in restitution to customers. The regulator also required the company to review and revise its systems, policies, procedures and training relating to the sale of its unit investment trusts. The sanctions were based on findings that the company lacked adequate procedures to address the suitability concerns raised by short-term trading in its unit investment trusts. Also, it did not provide brokers or supervisors any training on its unit investment trusts. Several company representatives allegedly recommended and effected short-term trades of unit investment trusts in their customers' accounts, resulting in the customers paying excess sales charges in the amount of approximately $167,780.49.
Without admitting or denying the findings, the Maxim Partners LLC unit consented to the sanctions and to the entry of findings that it failed to establish and maintain a supervisory system reasonably designed to detect and prevent unsuitable short-term trading in unit investment trusts.
On Oct. 30, D.A. Davidson & Co., a unit of D.A. Davidson Cos., was censured over findings that it disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase class A shares in certain mutual funds without a front-end sales charge. FINRA found that the company failed to reasonably supervise the application of sales-charge waivers to eligible mutual fund sales and adopt controls to detect instances where such waivers were not provided. Consequently, a number of eligible customers were sold class A shares with a front-end sales charge or class B or C shares with back-end sales charges and higher fees. Such customers were overcharged by approximately $384,214 for mutual fund purchases made since Jan. 1, 2011, according to the regulator.
As part of the settlement, the company agreed to pay restitution totaling $447,000 to eligible customers.