Further Lane Securities, L.P., a brokerage firm headquartered in New York City, New York, was censured and fined $126,673.78 by Financial Industry Regulatory Authority (FINRA) based upon an Office of Hearing Officers’ Default Decision which contained findings that the firm excessively charged customers’ mark-ups in reference to bond transactions, and did not reasonably supervise a subordinate registered representative’s conduct in this regard. Department of Market Regulation v. Further Lane Securities, L.P., No. 20120342425-01 (Feb. 3, 2017).
According to the Decision, between October of 2011 and November of 2013, a registered representative, JC, serviced the account of investment advisor, ABC. Apparently, proposals were provided by JC to ABC in reference to each of ABC’s clients, wherein JC would detail the bonds that would comprise a bond portfolio, and the pricing information in reference to each bond.
The Decision stated that limited orders were placed by JC with Further Lane Securities’ traders in order to construct the bond portfolio for the customers of ABC. Further Lane Securities’ trader reportedly effected the trades accordingly, wherein execution pricing information was provided to JC. Bonds would then be moved from the account of the trader to the account of JC after a mark-up was assessed. Subsequently, another mark-up was assessed at which time the bonds were sold by JC to the customers of ABC. These mark-ups, which JC evidently was responsible for setting, resulted in customers of ABC having to pay double mark-ups each time that Further Lane Securities, L.P. effected the sale of a security.
The Decision reported that fifty-three transactions which involved ABC’s customers were exposed to excessive charges. Moreover, in two additional occasions, JC apparently overcharged customers of DEF, which was another investment advisor whose accounts JC was responsible for servicing. The fifty-five transactions referenced in the Decision contained mark-ups which had ranged between three percent to nearly seven percent, with a median mark-up of over five percent. The Decision stated that JC ultimately overcharged investment advisory customers by $46,673.78. Consequently, Further Lane Securities was found by FINRA to have violated FINRA Rule 2010, IM-2440-1, IM-2440-2, and NASD Rule 2440.
Further Lane Securities was also found by FINRA to have failed to create and implement reasonable supervision procedures and systems pertaining to corporate bond sales. Specifically, the existing supervisory procedures and systems did not reasonably ensure that customers were charged with fair mark-ups. Evidently, no supervisor was required to assess the mark-ups charged to customers that factored in the security’s price and type, the amount of funds utilized in each transaction, the disclosure of mark-ups, etc. The existing supervisory structure also failed to take into account the practice which involved the charging of two mark-ups in the matter which resembled JC’s activities.
The Decision additionally revealed that the firm failed to supervise the activities of JC. In particular, Further Lane Securities supervisor, JA, was tasked with reviewing mark-ups assessed by subordinate registered representatives, which included the mark-ups which JC assessed. Apparently, JA assessed the firm’s trade blotters in order to assess transactions; however, the trade blotters omitted information concerning the total mark-ups which the firm charged customers. JA reportedly failed to calculate the total mark-ups charged to customers to determine whether the total mark-ups were excessive. FINRA found the firm’s conduct in this regard to be violative of FINRA Rules 2010 and NASD Rule 3010.
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