Wedbush Securities settles with FINRA for $850,000
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Wedbush Securities Inc. agreed to pay $850,000 in fines with $300,000 being applied to cover violations of Municipal Securities Rulemaking Board regulations cited by the Financial Industry Regulatory Authority.
In a Nov. 3 Letter of Acceptance Waiver and Consent, Wedbush offered to pay the fines and be subject to censure without admitting or denying the findings.
The settlement stems from allegations that the firm negligently misrepresented monthly account statements that were sent to approximately 610 customers from 2013-2018. The company reported that an assortment of municipal and corporate bonds was making interest or principal payments while they were actually in default.
The firm was charged with violating MSRB rules G- 8, G-17, and G-27.
Rule G-8 relates to keeping books and records. G-17 provides that “the conduct of its municipal securities or municipal advisory activities, each broker, dealer, municipal securities dealer, and municipal advisor shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice,” which includes providing inaccurate or misleading information to a customer.
Rule G-27 deals with the supervision of employees. It requires the “firms that sell municipal securities to establish and maintain a system reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable MSRB rules. The duty of supervision imposed by these rules includes the responsibility to investigate red flags that suggest misconduct may be occurring and to act upon the results of such investigation. ”
According to the AWC letter, Wedbush failed to “establish and maintain a supervisory system reasonably designed to review the accuracy of information included on customer account statements.”
Wedbush misrepresented data on a combination of 38 municipal and corporate bonds even after receiving notice that the bonds in question were in default. The data was withheld from the vendor the firm used to maintain information about securities held by the customers.
According to the AWC, the subterfuge began unraveling in September 2016 when “one of Wedbush’s correspondent firms notified the firm that a bond position held by the correspondent firm’s customers was in default and that the monthly account statements sent by Wedbush to those customers inaccurately stated that the customers were receiving interest payments for this position.” Wedbush did nothing to rectify the situation and continued to misreport on customer account statements until approximately December 2018.
Earlier this year the firm was fined $900,000 by FINRA for trading violations resulting from failed to deliver violations, which happens when a seller fails to deliver securities to the buyer by the due date.
