The Financial Industry Regulatory Authority has fined three individuals a total of $40,000 for alleged rule violations in connection with what FINRA says were improper allocations of new issue municipal bonds obtained by NewEdge Securities.
Each of the individuals accepted and consented to FINRA's findings set forth in a settlement document without admitting or denying them, the document, accepted by FINRA on Monday, said.
The settlement comes on the heels of a related settlement
According to the settlement document involving the three individuals, Jerry L. Little "willfully violated" Municipal Securities Rulemaking Board Rules G-11 and G-17 between January 2018 and May 2022 by submitting orders for new issue muni bonds without disclosing that they were for NewEdge's dealer account, the document said.
In February, NewEdge filed a notice indicating that Little had voluntarily terminated his registration through the firm, the document said. For violating the MSRB rules, Little is suspended in all capacities for nine months and fined $20,000, the document said. He is not currently registered with any FINRA member firm, FINRA records show.
Also during the period between January 2018 and May 2022, Robert E. Cline and Bjorn J. Erickson violated MSRB Rule G-27 "by failing to reasonably respond to red flags indicating the firm was obtaining improper allocations of new issue municipal bonds," the document said. For those violations, Cline and Erickson are each suspended in all principal capacities for three months and are also fined $10,000 each.
During the period between January 2018 and May 2022, Little submitted at least 148 orders for new issue municipal bonds to six underwriters without disclosing that those orders were for the firm's dealer account. Consequently, the underwriters gave NewEdge improper customer priority, and the firm received allocations for each of the 148 orders placed for its dealer account, FINRA examiners determined.
Little also submitted at least five orders to three underwriters for new issue municipal bonds during the retail order period when the orders were actually for the firm's dealer account. Underwriters as a result gave NewEdge improper retail priority and it received allocations for each of the five orders placed for its dealer account, the document said.
The at-issue orders were placed by Little on behalf of two firm branches that Cline and Erickson founded and owned FINRA found. Between 2011 and 2016, those branches bought and sold muni bonds on the secondary market. In 2016, Little was tasked by Cline with establishing underwriter relationships to facilitate purchases of new issue muni bonds for NewEdge's dealer account, according to FINRA.
"Between 2018 and 2020, Little requested treatment of the branches as an institutional customer when introducing the branches to underwriters and also sent letters stating that the branches constituted a 'family office/RIA [registered investment adviser]' when they did not," FINRA found.
After setting up the underwriter relationships based on the premise that the branches were a customer – and not a broker-dealer – Little subsequently submitted the orders without disclosing that they were for the firm's dealer account, enabling NewEdge to receive the improper new issue allocations, the document said.
Erickson served as Little's direct supervisor during the relevant period, FINRA found. Cline was responsible for supervising all registered representatives working at the branches, including both Little and Erickson.
