WASHINGTON – Dougherty & Co. and its former employee Jeffrey Hill have agreed to $140,000 and $5,000 fines, respectively, to separately settle with the Financial Industry Regulatory Authority over charges that Hill recommended and initiated numerous unsuitable trades for two elderly customers.
Dougherty's settlement, which also includes $78,910 in restitution to one customer, stems from FINRA findings that its supervision of Hill was unsuitable. Hill also faces a 15-month suspension "in all capacities" and will have to disgorge $45,000 of ill-gotten gains.
Six other firms and an individual paid a total of $145,000 in fines to settle charges of trade reporting as well as yield and call notification failures, sales below a bond's minimum denomination, and supervisory failures. All but one firm either declined to comment or could not be reached.
All the settlements except for Dougherty's were included in FINRA's monthly disciplinary report for January. The firms and individuals settled without admitting or denying the findings.
FINRA's findings against Dougherty and Hill involve activity that Hill undertook between January 2010 and June 2014. During that time as a registered broker and investment advisor with Dougherty, he initiated hundreds of trades for two elderly customers, roughly half of which were executed without first obtaining the customers' approval, according to FINRA.
In 25 instances during the same time period, Hill also recommended the two customers sell bonds shortly after buying them or initiated such transactions for those customers. Six of the recommendations and transactions involved municipal bonds and the rest involved corporates. FINRA found that Hill had no reasonable basis to believe that the short-term trading was suitable for any customer as well as that the level of trading was inconsistent with the two customers' financial needs.
Additionally, Hill recommended that one of the customers purchase securities on margin and initiated such transactions on behalf of the customer even though the recommendation was unsuitable for the customer's investment goals, FINRA said. Hill violated MSRB Rules G-17 on fair dealing and G-19 on suitability, the self-regulator found. The MSRB rule violations account for $1,250 of his $5,000 fine.
Hill, in a mitigation statement attached to the settlement, attributed his "problems" to his "severe" alcoholism that he has since treated.
Dougherty violated MSRB Rule G-27 on supervision through its failures to curb Hill's activities, FINRA said. The self-regulator said the firm put a supervisor in place for Hill who had many other representatives to monitor and who did not exercise appropriate discretion and judgment. The firm also did not have supervisory resources in place to detect Hill's activity and failed to correctly respond to warning signs of Hill's activity, including the dramatic increase in his commissions from 2011 to 2012 without a similar change in the number of accounts he was handling or the types of products he was selling.
In another action against an individual, FINRA found that Seila Phlong, who had been the designated principal for review and approval of trading for Atlanta-based YieldQuest Securities, failed to properly supervise daily orders. Phlong agreed to a $5,000 fine, $2,500 of which relates to violations of MSRB Rule G-27, as well as a three-month suspension in a principal capacity from associating with any FINRA member firm. Phlong will also have to requalify as a municipal securities principal, general securities sales supervisor, and/or registered options principal before re-associating with a member firm.
FINRA previously settled with Jay Chitnis, YieldQuest's former chief executive officer. Chitnis, who was also the firm's chief compliance officer and financial and operations principal from November of 2014 through September of 2015, caused 480 fraudulent fixed income transactions in 18 customer accounts through YieldQuest's clearing firm, according to FINRA. Phlong was the municipal principal and designated principal for review and approval of trading from July 2015 until the firm ceased trading in September 2015.
Three firms recently settled with FINRA over charges that they failed to properly report information to the MSRB's Real-time Transaction Reporting System.
New York-based Tradition Securities and Derivatives agreed to a censure and fine of $52,500 for reporting violations over three FINRA review periods. FINRA found that from Jan. 1, 2014 through March 31, 2014 Tradition failed to report information regarding 142 purchase and sale transactions of munis to the RTRS. The firm also improperly reported 17 intradealer transfers of munis that were not reportable to RTRS.
Tradition also failed to report 77 muni transactions to RTRS from Oct. 1, 2014 through Dec. 31, 2014, FINRA found, and improperly reported 100 intradealer transfers of munis from July 1, 2014 through Dec. 31, 2014. The reporting failures violated MSRB Rule G-14 on reports of sales and purchases.
Princeton, N.J.-based Cross Point Capital agreed to pay $10,000 to settle its reporting charges. FINRA found the firm inaccurately reported 45 muni transactions as being executed on an agency rather than principal basis.
New York-based Deutsche Bank Securities similarly said it would pay $17,000 after FINRA found 204 instances where the firm reported purchase and sale transactions in municipal securities to RTRS that were not reportable.
In a separate settlement, Oppenheimer & Co., based in New York, agreed to pay $20,000 over notification failures between Oct. 1, 2014 and Dec. 31, 2014. FINRA found that the firm failed to provide written notification disclosing to its customer the call date and dollar price of the call in 43 muni transactions executed on the basis of a yield to call. It also failed on three occasions to give its customer notification of the correct lowest effective yield and on one occasion improperly disclosed a yield to call in a muni with a variable interest rate. Those failures violated MSRB Rule G-15 on requirements for transactions with customers, FINRA said.
Oppenheimer said in a statement that it self-reported the issues because of enhancements it has made, which include upgraded personnel, strengthened policies, procedures and controls, and significant technology initiatives.
Alpharetta, Ga.-based First Southern Securities was found to have traded below bonds' minimum stated denominations in 56 transactions. It agreed to pay $25,000 and offer rescission to its customers. New York-based Blaylock Beal Van failed to properly disclose the issuers with which it was working on eight quarterly MSRB G-37 forms. Blaylock Beal Van agreed to pay $15,000.
