After the Financial Industry Regulatory Authority, or FINRA, found that Raymond James Financial Services Inc. had charged excessive commissions in about 13,500 customer accounts due to a failure to supervise, the firm agreed to pay more than $750,000 plus interest to the customers, as well as a $200,000 fine.
Raymond James also agreed to be censured in a letter of acceptance waiver and consent, or AWC, signed by the firm on September 9. Per the AWC, the firm neither admitted nor denied the findings, but consented for the purpose of settlement. FINRA accepted the AWC on Sept. 29
Raymond James Failed to Establish a Supervisory System
FINRA found that Raymond James failed to establish and maintain a supervisory system designed to achieve compliance with a conduct rule of the National Association of Securities Dealers, or NASD, concerning fair prices and commissions. As a result, according to the AWC, customers were charged unfair and unreasonable commissions on equity transactions. The excessive charges may be ongoing. Raymond James has agreed to revamp its system to prevent improper commissions.
From Jan. 1, 2006, through at least Oct. 31, 2010, Raymond James used an automated commission schedule that did not take all the relevant circumstances into account when calculating the commissions as require by the rules of conduct. As a result, the firm charged unfair and unreasonable commissions on a number of purchases and sales of mostly low-priced securities, the AWC says.
$795,568 in Excessive Commissions Charged
In total, FINRA found that Raymond James charged $795,568 in excessive commissions for 13,519 transactions affecting about 8,310 customers.
Specifically, the automated commission schedule ran afoul of NASD Conduct Rule 2440, which states that a broker-dealer or stockbroker who is a FINRA member and who buy or sells for their own account from a customer’s account, must buy or sell at a fair price, taking all relevant circumstances into consideration. If the member acts as an agent for the customer, the member must charge a commission or service charge that is fair, taking into consideration all relevant circumstances.
Raymond James’ conduct covered by the AWC also violated NASD Rule 3010 relating to supervision, NASD rule 2010 relating to general standards of conduct and FINRA Rule 2010, which imposes high standards of commercial honor and just and equitable principles of trade.
Commissions are judged excessive according to a FINRA policy adopted in 1943 that set a guideline of five percent to determine whether a mark-up is unfair or unreasonable. The policy applies to commissions on agency trades, as well as to mark-ups or mark-downs on principal transactions.
Because the five percent policy is a guideline, not a rule, a mark-up of five percent or even less might be considered unfair or unreasonable under NASD Conduct Rule IM-2440-1.3. The fairness determination has to be based on a consideration of all relevant factors, of which percentage is only one.
Other relevant factors include the type of security involved, the availability of the security in the market, the price of the security, the amount of money involved in a transaction, the pattern of the member’s mark-ups, the nature of the member’s business, and whether disclosure of the transaction cost was made to the customer prior to the trade.
Raymond James’ supervisory system was inadequate because the firm failed to consider these factors in establishing its commission schedule and in setting commissions for each specific transaction, according to the AWC.
Raymond James to Pay Fine & Restitution
The AWC shows that Raymond James consented to payment of restitution, the $200,000 fine and a censure. The customers entitled to restitution and their accounts are identified by FINRA in an appendix. Interest on these payments will accrue from the date of the transaction for which the excessive commission was charged until the AWC is accepted by the National Adjudicatory Council, or NAC, which reviews initial decisions rendered in FINRA disciplinary and membership proceedings. The interest will be calculated according to the formula laid out in the Internal Revenue Code.
Raymond James has also agreed to pay restitution to customers who were charged, or are still being charged, the unfair and unreasonable commissions from Nov. 1, 2010, until the firm revises its automated commission schedule to comply with the NASD rules, the AWC says.
Moreover, within 120 days of acceptance of the AWC, Raymond James must provide FINRA with a certification executed by a registered principal of the firm that it has revised its automated commission schedule.
The principal must also submit proof within 120 days that the restitution has been paid, or that the firm made reasonable efforts to pay. These efforts must be documented. Any undistributed restitution plus interest — after reasonable efforts have been made to find the customers — will escheat to the unclaimed property or abandoned property fund for the state in which the customer is last known to have resided.
The AWC also notes that the imposition of a restitution order and fine does not preclude customers from pursuing their own actions to obtain restitution or other remedies.
The St. Petersburg, Fla.-based Raymond James has been FINRA member since May 1974. It is an independent contractor firm that also does business through Raymond James & Associates Inc., an affiliated company. The firm employs about 4,750 registered persons.
The FINRA Public Disclosure
Public disclosure records kept by FINRA show that Raymond James has been involved in 43 other regulatory actions. Seventeen of these actions were initiated this year for conduct including dishonest and unethical practices in the sale of securities.
The records also show that Raymond James has been involved in 68 arbitrations, some which resulted in the firm having to pay a sizeable award. For example, in 2005 the firm had to pay out about $730,000 after an arbitration concerning breach of contract, fraudulent activity, misrepresentation and unsuitability.
The AWC lists two relevant disciplinary actions. This June, Raymond James was censured and ordered to cease and desist from further violations by the Securities and Exchange Commission for violations connected to the firm’s sales of auction rate securities. The firm agreed to purchase eligible auction rate securities from current and former customers as a term of the order.
In June 2010, Raymond James was censured and fined $150,000 by FINRA for failing to enforce supervisory procedures to comply with suitability requirements related to the sale of college savings plans and for allowing personnel to review and approve college-plan transactions when they were not registered or qualified to do so.
Guiliano Law Group
The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
