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FINRA: Bank Fines & New Partnerships

by , December 28, 2012. (Posted in: Banking / Personal Finance News)


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The Financial Industry Regulatory Authority has put its powerful foot down and under it are five of the biggest names in the financial sector who’ve just been ordered to pay fines totaling $4.5 million for their use of municipal and state bonds to pay lobbyists. Watchdog fines Wall Street firms $4.5 million for lobbyist payments.

The big five likely won’t come as any surprise to anyone. It’s usually those familiar rule breakers who push the envelope time and again.

Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Bank of America Corp’s Merrill Lynch and Morgan Stanley has been ordered to reimburse the the millions used to pay California Public Securities Association between the first part of 2006 and the end of 2010.

On Thursday, the Financial Industry Regulatory Authority, which is “Wall Street’s self-imposed watchdog”, said these five financial entities “unfairly sought reimbursement of fees they paid to the California Public Securities Association by requesting they be refunded as underwriting expenses from the bond sales”.

The Authority then went on to say they violated fair dealing and supervisory rules of the Municipal Securities Rulemaking Board by attempting to gain reimbursement for the payments made to Cal PSA. Cal PSA is a political association with lobbying activities for companies looking to influence California’s government on the state level.

It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals,

said Brad Bennett FINRA’s chief of enforcement, in a statement this week.

The fines were around $3.35 million with $1.13 million to be paid in restitution to issuers in California. They did not have to admit or deny the charges, but all greed with the FINRA findings.

Three of the five banks had their own pressers following the announcement. For its part, Citi spokesperson Scott Helfman said,

We are pleased to resolve this matter and look forward to putting this behind us.

Meanwhile, Morgan Stanley spokesman Mark Lake agreed and said his firm too is “pleased to have resolved this issue in a satisfactory manner for the firm.”

Goldman Sachs took a slightly different approach and said its company had already voluntarily refunded publicly disclosed Cal PSA fees in February 2011 for charges as underwriting expenses, from a state’s level issuance, at the request of California’s treasurer’s office. Tiffany Galvin, a spokeswoman for Goldman, said,

At that time, we also discontinued the longstanding industry-wide practice of seeking reimbursement for such fees on offerings by state and local governments in California. We’re pleased to have resolved this matter.

Neither Merrill Lynch nor JPMorgan Chase had any public comments.

That’s not all FINRA has been up to, though. Through a joint press release earlier this month, both FINRA’s Investor Education Foundation the Better Business Bureau announced a new consumer finance website designed to help consumers both educate themselves and make stronger decisions when it comes to their retirement funds, avoid becoming victims of fraud and identity theft and how to identify unlicensed brokers with less than noble intentions.

This joint effort combines the research and expansive knowledge base of the FINRA Foundation with the extensive consumer outreach of BBB’s trusted 100-year-old name. The Better Business Bureau has 104 local operations across the United States.

Our partnership with BBB will help Americans in communities across the country protect their savings from fraudsters,

said FINRA Foundation President Gerri Walsh.

The FINRA Foundation’s ‘Outsmarting Investment Fraud’ curriculum and resources have been field-tested, and give consumers the tools and information they need to thwart fraudsters touting investment scams.

As most are aware, consumer financial fraud continues to be a serious problem for consumers throughout not only the United States, but North America as a whole.

In fact, both the Federal Trade Commission and the Canadian Anti-Fraud Center say consumers have lost more than $1.5 billion due to scams and frauds in 2011 alone. This new partnership will ideally empower consumers so that they’re less likely to become a statistic.

Here’s what’s most interesting, though. In its first survey, the foundation discovered small-time investors are “overconfident in their knowledge of financial management”.

It appears to be the baby boomers who are most often the target of investment scams. Its first telephone survey tells the tale:

92 percent felt “somewhat” or “very” confident about managing their finances, with almost 80 percent describing themselves as “somewhat” or “very” knowledgeable about investing. But only 44 percent got a passing grade on a basic financial literacy knowledge test. BBB Smart Investing hopes to help change that.

Carrie Hurt, who is the president and CEO of the Council of the Better Business Bureau said,

This is a great partnership. Even though BBB has always investigated investment scams, this gives us a whole new portfolio of prevention tools to offer to consumers. The FINRA Foundation’s basic ‘Ask & Check’ message is exactly what consumers need to hear before they make investment decisions. We think this program will go a long way toward preventing investment scams that have become so much more prevalent in recent years as people more actively manage their own retirement funds.

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