Blotter: October 2011

B/D Blunder

The Financial Industry Regulatory Authority cracked down on five broker/dealers last month, claiming the firms understated total commissions charged to customers in trade confirmations and fee schedules and wrongly characterized fees for handling services. FINRA said the handling fees charged by the firms were far greater than the cost of providing the service.

The firms involved included Pointe Capital, formerly JHS Capital Advisors, of Boca Raton, Fla., which was fined $300,000; John Thomas Financial in New York, which was fined $275,000; First Midwest Securities of Bloomington, Ill., fined $150,000; A&F Financial Securities of Syosset, N.Y., fined $125,000; and Salomon Whitney of Babylon Village, N.Y., which was fined $60,000.

The handling fees charged by the firms ranged from $65 per trade by A&F to $95 per trade by Pointe Capital.

The action was part of a targeted effort by FINRA to review improper fees charged by broker/dealers. “FINRA will continue to look closely at any firms that engage in these practices,” said Brad Bennett, FINRA executive vice president and chief of enforcement.

AXA Gets the Axe

The Securities and Exchange Commission has charged institutional money manager AXA Rosenberg with fraud, claiming that the firm's former chairman hid an error in its quantitative model's computer code. According to the SEC, Barr M. Rosenberg found out about the computer error in June 2009 after the SEC instituted administrative proceedings, but he told his employees to keep quiet about it.

In an October 2009 board meeting, Rosenberg denied the existence of any significant errors, and the error was not disclosed to clients until April 2010, resulting in $217 million in losses, the SEC said.

As part of a settlement, Rosenberg will pay a $2.5 million penalty and be barred from the securities industry. In February of this year, the SEC charged AXA, which had to pay $217 million to harmed clients as well as $25 million in penalties.

“Investors in quant funds trust their advisers to develop, maintain and operate the quant models that drive a fund's performance,” said Bruce Karpati, co-chief of the SEC's asset management unit. “Rosenberg betrayed investors when he failed to disclose the material coding error.”

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