Oriental Financial Services Corp. – South Florida Unsuitable Puerto Rico Bond Investment FINRA Arbitration Attorney:
The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.
The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:
February 2015 Disciplinary and Other FINRA Actions:
Oriental Financial Services Corp. (CRD #29753, San Juan, Puerto Rico)submitted an AWC in which the firm was censured, fined $245,000 and undertakes to submit to FINRA a proposed methodology of how it will identify, review and remediate unsuitably concentrated Puerto Rico (PR) securities purchases. At a minimum, the methodology must include the firm’s review of customers’ concentrated PR securities purchases effected between December 14, 2012, and June 30, 2013, and a provision explaining how restitution, if any, will be calculated. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that the firm reported to FINRA on Form 4530 that it had not disclosed on customer confirmations the markups and markdowns for riskless principal transactions in PR closed-end funds (PR CEFs).
The findings stated that between 2000 and August 5, 2013, the firm effected approximately 2,800 riskless principal transactions involving PR closed-end funds (CEFs) in approximately 1,000 accounts and failed to disclose approximately $2.9 million in markups and markdowns on customer trade confirmations. The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Securities Exchange Act of 1934 Rule 10b-10. The firm’s staff did not appropriately classify PR CEFs as equity securities and its supervisory staff were therefore unaware that the disclosure requirement for riskless principal transactions in equity securities applied to PR CEFs throughout the 13-year time period. The firm failed to have a system in place to ensure that it disclosed markups and markdowns on riskless principal transactions in PR CEFs because it failed to appropriately classify those products as equities that required disclosures. The findings also included that the firm failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR CEFs. The firm’s registered representatives continued soliciting concentrated purchases of PR securities even after a municipal bond rating downgrade of the general obligation rating of the Commonwealth of Puerto Rico. While the firm’s WSPs required that its registered representatives have reasonable grounds to believe that any purchase or sale recommendation was suitable for a particular customer, the WSPs did not outline the steps that the firm should have taken to review the transactions for concentration. Despite having implemented guidelines, the firm did not require that supervisors review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews. The firm engaged a consultant to perform a self-review through which it identified six potentially unsuitable purchases of PR securities. (FINRA Case#2013035308801).
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