Finra fined two independent broker-dealers owned by Ladenburg Thalmann Financial Services Inc. $1.275 million Wednesday because of a failure to supervise hundreds of brokers who created and sent false and inaccurate consolidated account statements to clients.
The Financial Industry Regulatory Authority Inc. fined the two firms, Triad Advisors Inc. and Securities America Inc., $650,000 and $625,000, respectively.
Triad Advisors also was ordered to pay $375,000 in restitution to two clients who received consolidated reports that reflected fictitious promissory notes or other fictitious assets, allowing two former Triad brokers to conceal their misconduct, according to Finra.
A consolidated report is a single document that combines information regarding most or all of a customer's financial holdings, regardless of where the assets are held, according to Finra.
(More: Finra fines, complaints drop as market improves)
Consolidated reports supplement but don't replace official customer account statements, Finra said.
Many of the broker-generated consolidated reports at the two firms inflated values for investments, some of which were in default or receivership.
In the Securities America settlement, Finra pointed to reports issued by brokers in 2011 that “revealed numerous instances where the representatives had input inaccurate values for investments such as Medical Capital Holdings Inc. notes and Provident Shale Royalties,” according to the order. “Although Medical Capital and Provident Shale Royalties were in receivership as of August 2009, the statements continued to show the value of the investments at par value.”
Last March, a review of “800 manually entered positions [by Securities America representatives] disclosed that 500 of the positions had been overvalued on Albridge reports,” according to the Finra settlement.
“The overvalued positions included 300 Medical Capital investments, investments in Provident Shale Royalties, and investments in other illiquid securities,” according to the settlement.
In reaching these settlements, Securities America and Triad Advisors neither admitted nor denied Finra's charges.
Securities America has 2,235 registered representatives and financial advisers, and Triad Advisors has more than 600 reps and advisers.
“Securities America has worked diligently to enhance supervision and books and records requirements for performance reports and will continue to do so,” Securities America spokeswoman Janine Wertheim wrote in an e-mail, adding that supervision of broker-generated consolidated reports is an issue that the entire independent broker-dealer industry f! aces.
In an e-mail, Triad Advisors spokeswoman Emily Deissler echoed Ms. Wertheim's comments.
From 2003 to 2007, Securities America was the biggest seller of notes issued by Medical Capital Holdings, which was later revealed to be a $2 billion Ponzi scheme. Securities America brokers sold close to $700 million of those notes, the legal fallout from which resulted in Ameriprise Financial Inc. selling Securities America in 2011 to Ladenburg Thalmann.
(Don't miss this Special Report on Independent Broker-Dealers)
Securities America reps sold about $25 million worth of two Provident Shale Royalties offerings to close to 400 investors, according to the Finra order.
Since April 2010, Triad Advisors permitted its reps to use multiple systems to create and provide customers with consolidated reports, according to Finra.
“Triad's supervisory system failed to detect consolidated reports provided by two former representatives that contained false assets that were manually entered,” according to the Finra order. “Triad's failure to establish, maintain and enforce adequate procedures to review manual entries in consolidated reports allowed false and inaccurate consolidated reports to be sent to customers by two former representatives on multiple occasions.”
The deficiencies in Triad's branch audit program contributed to the firm's inability to discover a now deceased rep's sale of fictitious promissory notes to about 20 customers, according to Finra.
Triad also failed to maintain its net capital position for 10 days in November and December 2009, according to Finra, and also filed inaccurate Focus reports from January 2008 through June 2010.
No comments:
Post a Comment