2012 FINRA Annual Conference Materials - May 23 Session

. Cases
1) Northern Trust Securities (Case #2009018771601) ($600,000) (June
2011)
On June 2, 2011, FINRA announced that it had fined Northern Trust
Securities $600,000 for deficiencies in supervising sales of
collateralized mortgage obligations (CMOs) and failure to have
adequate systems in place to monitor certain high-volume securities
trades.
FINRA found that from October 2006 through October 2009,
Northern Trust failed to monitor customer accounts for potentially
unsuitable levels of concentration in CMOs, in large part because it
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. FINRA found
that from January 2007 to June 2008, 43.5 percent of the firm's
business was excluded from review.
The absence of systems to monitor equity trades of over 10,000
shares or fixed income trades of over 250 bonds also resulted in a
failure to review these trades for suitability, concentration, excessive
trading, excessive mark- ups or commissions, or for trading in
restricted stocks.
2) Credit Suisse Securities (Case #200801280890) ($4.5 million) and
Merrill Lynch (Case #2008012808201) ($3 million)
On May 26, 2011, FINRA announced that it had fined Credit Suisse
Securities (USA) LLC $4.5 million, and Merrill Lynch $3 million for
misrepresenting delinquency data and inadequate supervision in
connection with the issuance of residential subprime mortgage
securitizations (RMBS).
FINRA found that in 2006, Credit Suisse misrepresented the historical
delinquency rates for 21 subprime RMBS it underwrote and sold.
Although Credit Suisse knew of these inaccuracies, it did not
sufficiently investigate the delinquency errors, inform clients who
invested in these securitizations of the specific reporting
discrepancies or correct the information on the website where the
information was displayed. Credit Suisse also failed to name or define
the methodology used to calculate mortgage delinquencies in five
other subprime securitizations. Additionally, Credit Suisse failed to
establish an adequate system to supervise the maintenance and
updating of relevant disclosure on its website.
In a separate case, FINRA found that Merrill Lynch negligently
misrepresented the historical delinquency rates for 61 subprime
RMBS it underwrote and sold. However, in June 2007, after learning
of the delinquency errors, Merrill Lynch promptly recalculated the
information and posted the corrected historical delinquency rates on
its website. Merrill Lynch also failed to establish a reasonable system
to supervise and review its reporting of historical delinquency
information. On January 1, 2009, Merrill Lynch was acquired by Bank
of America, but the firm continues to do brokerage business under its
own individual broker-dealer registration.
3) Barclays Capital (Case #2008012808801)
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