The Financial Industry Regulatory Authority suspended a broker-dealer and fined him $15,000 for allegedly violating his firm’s prearranged trading procedures by deceptively selling its customers’ investments to other customers in a municipal bond trade.
A FINRA hearing panel late last week made the decision to fine and bar from the industry Ricky Mantei, now a dealer at Centaurus Financial Inc. When a complaint was first filed in 2019, Mantei denied FINRA’s allegations and asked for a hearing. FINRA held a five-day hearing and found that its enforcement team proved he violated muni bond rules among others. Mantei also had to pay $11,895 for the cost of the hearing. He could decide to appeal FINRA’s decision.
While working at the Lexington, South Carolina branch office of Atlanta-based J.P. Turner & Co., from 2010 to 2015, Mantei allegedly sold a customer’s position in a Fresno, California,
“According to the complaint, Mantei did not sell these instruments directly from one customer to another in compliance with the firm’s cross-trade procedures,” FINRA’s hearing panel said. “Nor did he sell the instruments out to the market in bona fide transactions. Instead, he allegedly engineered a plan to sell the customers’ financial instruments to other firm customers without it appearing that he had engaged in cross trades.”
A cross-trade is where a dealer buys and sells orders for the same asset that are offset without recording the trade.
In that plan, Mantei arranged for third parties to buy each selling customer’s investment with an understanding that the firm would repurchase it a short time later. After Mantei caused the firm to repurchase them, he then sold them to other customers, FINRA said.
“Regarding the municipal bond trades, it (enforcement) alleges that Mantei willfully breached his duty of fair dealing and engaged in a deceptive, dishonest, and unfair practice,” FINRA said.
The firm had special procedures for cross-trades since at least 2014, FINRA found, including a requirement that a cross-trade be identified on the order ticket and that any instructions for the order be recorded.
FINRA enforcement found that Mantei didn’t do that for the Fresno bond or the SCDs identified. Mantei followed the same general pattern — a customer from the firm’s Lexington office would sell a financial instrument to the firm, which in turn sold it to another dealer. Later that dealer sold it back to the firm at a price a bit above what it had paid. That increased price included a service fee to pay for the dealer temporarily holding the position.
“In each instance, Mantei hoped to sell the repurchased positions to other firm customers,” FINRA said. “Mantei helped locate each of the customers who ultimately bought the financial products in the three sets of trades.”
In 2014, Mantei bought a $30,000 face amount Fresno HE2 bond from a customer and sold the position that day to a broker-dealer, FINRA found. Mantei then repurchased the position three days later and resold it in three $10,000 face amount transactions to three firm customers. That violated Municipal Securities Rulemaking Board Rule G-17 on fair dealing, and FINRA said Mantei’s conduct with those Fresno trades constituted deceptive, dishonest or unfair practice.
“According to enforcement, the total markup/markdown paid by the selling customer and the ultimate purchasers was 5.1%, which exceeded the 2.6% limit set in the firm’s cross-trade procedure,” FINRA said.
None of the order tickets or trade records disclosed it as a cross-trade.
FINRA enforcement found that Mantei violated the firm’s policy prohibiting prearranged trading, which Mantei denied.
Mantei said during his testimony that when the customers sold their instruments and the firm trader sold the instruments out to the street, he hoped to buy them back and sell them to another firm customer. He did not view the trades as prearranged because the street purchasers did not have to sell the positions back to him.
Mantei also evaded the firm’s cross-trade procedures, by not documenting them and explaining why a cross-trade was best for both customers, FINRA said. Mantei argued that his transactions were not cross-trades.
In the end, Mantei said there was no evidence of customer or market harm, that he didn’t receive guidance from his firm or supervisors, and asserted that he was trying to take care of his clients. He told FINRA he was the victim.
J.P. Turner & Co. was acquired by RCS Capital in 2014. Mantei has been registered with FINRA since 1983.
Mantei’s attorneys did not respond to a request for comment and neither did his current firm, Centaurus.
