Articles Posted in JP Turner & Co

The Financial Industry Regulatory Authority is sanctioning J.P. Turner & Co. for violating a rule mandating that brokers must make sure that municipal securities transactions between a customer’s account and the firm’s account occur at a price that is “fair and reasonable.” The SRO contends that the firm’s supervisory system did not provide the kind of supervision that could achieve compliance with securities regulations involving fair pricing

As part of the settlement, J.P. Turner will pay a $140K fine and over $76K plus interest in customer restitution.

The brokerage firm will also pay a $75k fine related to the ongoing use of a third-party telemarketer, which continued after it made the decision to stop using the marketing firm. Because the telemarketer stopped getting a do-not-call list from the firm, it continued to call people on the registry.

J.P. Turner agreed to settle both cases without denying or admitting to the charges.

In other news, the Securities and Exchange Commission is charging and fining 14 muni bond underwriting firms for issuing inaccurate information to investors. Collectively, the firms will pay about $4.58M for federal securities law violations that purportedly occurred between ’11 and ’14. The alleged violations involved the sale of municipal debt that used offering documents with materially false statements or omissions about borrower compliance as they pertain to disclosure duties. The SEC said that the firms did not perform proper due diligence to identify issues before selling the bonds.Barclays Capital Inc. (BARC), which will pay $500K, Wells Fargo Bank (WFC) N.A. Municipal Products Group, which will pay $440K, Jefferies LLC (JEF), which will pay $500K, and TD Securities USA LLC, which will pay $500K.

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The Financial Industry Regulatory Authority has fined six independent brokerage firms for not giving clients the proper discounts on big sales of business development companies and real estate investment trusts. According to InvestmentNews, the self-regulatory organization has been scrutinizing whether financial firms are giving the appropriate discounts, also known as breakpoint discounts to clients.

When the sale of certain nontraded real estate investment trusts is anywhere from over $500K up to $1 million, a discount is usually available. This means that the REIT’s price, which is typically at $10/share with the broker getting a 70 cent commission, can go down to $9.90/share and a commission of 60 cents.

FINRA said that J.P. Turner, Voya Financial Inc. (VOYA), Transamerica Financial Advisors Inc., Investacorp., National Planning Corp., and Cetera Investment Services did not identify and put into effect volume discounts for certain eligible purchase of BDCs and non-traded REITs. Because of this, said the SRO, customers paid sales charges that were too high. Now, all six firms will have to pay restitution to the clients that were affected.

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Cetera Financial Group is shutting down one of its brokerage firms, J.P. Turner & Co., shortly after its purchase. Larry Roth, the independent financial network’s CEO, told InvestmentNews that the move is not part of a broader consolidation involving its different firms.

About half of J.P. Turner’s 300 investment advisers have been invited to work at Summit Brokerage Services Inc., which is also owned by Cetera. Roth has indicated the reason for the closing of J.P. Turner is so its advisers can more swiftly access the complete spectrum of support and services offered by Cetera’s network through business-to-business provider Pershing, LLC. J.P. Turner had worked with a different clearing firm as, reportedly, Pershing had refused to do business with J.P. Turner because of their checkered past.

According to Securities Lawyer and Shepherd Smith Edwards Partner Sam Edwards, “It is not surprising Pershing did not want to clear trades for J.P . Turner as the firm has long had a reputation among those in the industry, and especially attorneys representing customers, as one willing to take on brokers and allow trading that other firms would not permit. This has resulted in our firm representing many J.P. Turner clients over the years and those cases have been among some of the more egregious we have seen.”
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The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.

A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.

During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.

The Financial Industry Regulatory Authority Inc. says that J.P. Turner & Co. has to pay restitution of $707,559 to 84 clients over the sale of inverse and leveraged ETFs that were unsuitable for them, as well as for excessive mutual fund switches. The SRO says that the broker-dealer did not set up and keep up a supervisory system that was reasonable but instead oversaw inverse and leveraged ETFs the same way it did traditional ones. It also accuses the financial firm of providing inadequate training regarding ETFs. By settling, J.P. Turner is not denying or admitting to the charges.

Leveraged and Inverse Exchange Traded-Funds

Inverse and leveraged ETFs “reset” every day. They are supposed to meet their objectives daily so their performance can rapidly diverge from that of the benchmark or underlying index. Unfortunately, even if long-term index performance exhibits a gain, investors can be susceptible to substantial losses. Markets, when they are volatile, can only exacerbate the situation. Also, leveraged and inverse ETFs are not suitable for all investors.

The Financial Industry Regulatory Authority is accusing Park Financial Group Inc., JP Turner & Co., and Legent Clearing LLC of inadequate anti-money laundering procedures. The broker-dealers and four persons connected to them have consented to pay more than $1.25 million for failing to detect and report suspect penny-stock transactions.

JP Turner & Co. will pay $525,000, Park Financial will pay $400,000, and Legent Clearing will pay $350,000. By agreeing to pay the fines, the broker-dealers are not admitting or denying wrongdoing. Also:

• Park Financial equity trader David Farber received a $30,000 fine and a 30-day suspension.
• JP Turner’s ex-AML compliance officer S. Cheryl Bauman received a $30,000 fine and a suspension barring her for 18 months from acting as a securities firm principal.
• Former JP Turner branch manager Robert Meyer received a 1-month suspension from acting as a principal. He also must pay a $5,000 fine.
• JP Turner equity trader John McFarland and former Park Financial CEO and AML compliance officer Gordon Charles Cantley have agreed to be permanently barred from the industry.

According to Susan Merrill, FINRA’s enforcement chief, the firms allowed suspicious trades to be processed even though there were notable red flags. Suspect trades included the liquidations and deposits of penny stocks connected to parties with histories of stock manipulation or securities fraud.

FINRA claims the broker-dealers neglected to set up and put into action proper procedures to identify and report suspect trading involving low-priced securities and that this failure resulted in the risk that the securities could be used by “unscrupulous” parties,” including those involved in securities fraud, money laundering, or market manipulation.

For example, FINRA says although Park Financial had clients with histories of securities-related violations, the broker-dealer failed to note the “red flags” that might indicate the customers could be involved in risky activities, including depositing millions of low-priced securities shares and making millions of dollars by liquidating the shares and sending the proceeds to bank accounts in the US and offshore.

FINRA is accusing JP Turner of neglecting to identify, probe, and file Suspicious Activity Reports over a number of possibly suspect transactions, such as those involving numerous accounts under one name or clients using multiple names for no business-related reason. FINRA contends that Legent Clearing has an AML program that doesn’t consider the company’s business risks and fails to properly consider money laundering risks presented by some of its correspondent firms that had extensive disciplinary histories and were engaged in penny stock liquidations and other high-risk business activities.

Related Web Resources:
FINRA Fines Three Firms Over $1.25 Million for Failing to Detect, Investigate and Report Suspicious Transactions in Penny Stocks, FINRA, June 4, 2009
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The Financial Industry Regulatory Authority and J.P. Turner & Co. have reached a settlement agreement over charges that the broker-dealer failed to put in place a proper supervisory system for making sure that its registered representatives charged clients reasonable and fair commissions on stock trades. By agreeing to settle, JP Turner is not admitting to or denying the charges involving inadequate supervision.

FINRA says that between January 2002 and March 2005, JP Turner failed to take certain relevant factors into consideration when determining how much commission they should charge clients for equity securities transactions. Instead, FINRA says that the broker-dealer let its brokers charge commissions of up to 4.5% on nearly every stock trade, with discretion on what commission to charge solely limited by whether the security’s price was higher or lower than $25/share. If the security’s price was under $25/share, FINRA says that JP Turner representatives could charge commission of up to 4.5%. They could charge commissions of up to 3.5% if the security price was higher than $25.

FINRA requires brokerage firms to put in place systems and “reasonable procedures” for determining what commission fee a customer should be charged for such transactions, while taking into consideration certain relevant factors. The SRO’s mark-up policy provides a list of these relevant factors, including: the kind of security, the price of the security, the transaction size, the order execution cost, and the availability of the security.

During the review period, FINRA says that 91% of JP Turner’s transactions involved securities priced under $25/share. While the broker dealer’s trading manager was in charge of reviewing and approving trades to make sure charges were reasonable and fair, the SRO says the reviews actually consisted of checking transactions to make sure that commissions did not go above the company’s 4.5% and 3.5% guidelines.

As part of its settlement with FINRA, JP Turner will pay $250,000. The broker-dealer has also agreed to retain an independent consultant who will evaluate for adequacy the company’s systems, policies, procedures, and training related to FINRA’s fair price ruling.

Related Web Resources:

J.P. Turner Fined $250,000 for Failing to Supervise Commissions Charged on Stock Trades, FINRA, October 29, 2008
JP Turner & Co
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