Northern Trust Securities, Inc. will pay a fine of $600,000 to FINRA for alleged lack of proper supervision in the areas of collateralized mortgage obligations (CMO's) and high-volume securities trades. FINRA claims that the firm did not monitor nearly 45% of their business over a year and one half time frame.
The allegations regarding lack of supervision and monitoring of customer accounts centered on a three-year period between 2006 and 2009. The claim is that due to the firm's alleged issues with monitoring, some accounts ended up with CMO's in concentrations that were not suitable for the account holders.
The underlying reason was stated to be because the firm "used an exception reporting system that failed to capture or analyze substantial portions of the firm's business, including all CMO transactions, certain trades of 10,000 equity shares or more, and certain trades of 250 or more of fixed-income bonds."
Without the appropriate systems in place to monitor equity trades at certain levels (10,000 shares, for example or large numbers of bonds in fixed income) the firm is alleged to have allowed trades to occur that were not monitored for suitability, concentration and other issues such as the rate of mark-ups and commissions.
Overall, FINRA pointed to a lack of monitoring that, according FINRA's Executive Vice President and Chief of Enforcement Brad Bennett, "allowed more than 40 percent of its transactions to proceed without review, which in turn left vulnerable investors exposed to the risk of losing all or a substantial portion of their principal through potential over-concentration in CMOs." The firm has consented to the settlement without an admission or denial of the charges.
Appropriate monitoring and supervision have been the subject of prior posts by the lawyers at the Securities Lawyer Blog. Compliance in this area continues to be important for broker-dealers.
Our New York securities litigation firm advises broker-dealers to ensure that they have proper systems in place to comply with industry rules and practices. We also represent industry members before all regulatory agencies. For more information on our law practice and representation, or to speak with one of our experienced securities litigators, please contact Wall Street's Gusrae Kaplan Nusbaum PLLC.
