Collateralized Mortgage Obligation Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
RBC Capital Markets, LLC (CRD #31194, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $25,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that in Collateralized Mortgage Obligations (CMOs) transactions with mostly retail, non-institutional customers, it charged markups and markdowns that were as high as 16.9 percent. The findings stated that these charges exceeded the firm’s own internal guidelines based on the type and maturity of each security. The firm’s internal guidelines were intended to ensure that charges were fair, reasonable and compliant with NASD Rule 2440. According to the firm’s procedures, charges exceeding the firm’s guidelines had to be adjusted if not otherwise justified in writing on the firm’s order records. The findings also stated that the firm’s next-day surveillance reports flagged each of the transactions as outside of the firm’s markup/markdown policy thresholds. The charges were not justified on the firm’s order records, and accordingly, each transaction was identified for price adjustment but due to miscommunications between the firm’s Fixed Income Trading Desk and trade support personnel responsible for making the price adjustments, firm personnel assumed that the markups and markdowns on the transactions were adjusted to comply with the firm’s guidelines. The findings also included that the firm failed to verify that the trade corrections had actually been effected so it did not adjust any of the charges imposed on the firm’s customers that were flagged as exceeding the firm’s guidelines, which totaled $30,000, until after FINRA staff brought the matter to the firm’s attention. FINRA found that the firm failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure that the firm only charged customers markups and markdowns on CMO transactions that were fair, reasonable and compliant with NASD Rule 2440. (FINRA Case #2009020904501).