Florida Securities Fraud Lawyer Blog

On July 26, 2011, the Financial Industry Regulatory Authority ("FINRA") announced that it fined SunTrust Robinson Humphrey ("SunTrust RH") and SunTrust Investment Services ("SunTrust IS") for violations in connection with the sale of auction rate securities ("ARS"). SunTrust RH, the underwriter of the ARS, was fined $ 4.6 million for not sufficiently disclosing the increased risk of the auctions failing, disclosing material non-public information, for using sales material that did not properly reveal the risk associated with ARS, and for having inadequate controls in relation to the sales and marketing of ARS. SunTrust IS was fined $400,000 for failing to maintain adequate supervisory procedures in relation to its sales and marketing of ARS.

FINRA alleged that from late summer 2007 through February 2008, SunTrust RH became aware of strains in the ARS market, which increased the risk that auctions could fail. During that time, SunTrust RH was told by SunTrust Bank, its parent company, to reduce its usage of working capital. As the strains intensified, SunTrust RH did not adequately disclose the increased risks to its sales representatives, and encouraged them to sell SunTrust RH-led ARS issues in order to manage or reduce the Firm's inventory. Consequently, some SunTrust RH sales representatives continued to sell these ARS as safe and liquid.

FINRA also found that on February 13, 2008, that SunTrust RH negligently disclosed material non-public information to SunTrust Bank. The information was material because SunTrust Bank was assured that if the auction market came to a standstill; it would probably be able to dispose of the illiquid ARS on the date the ARS was refinanced.

In addition, both SunTrust RH and SunTrust IS used unfair advertising materials that did not provide an adequate source for assessing the facts about purchasing ARS; and both firms neglected to maintain adequate supervisory procedures and training with regards to their sales and marketing of ARS.

For purposes of the settlement, neither SunTrust RH nor SunTrust IS admitted or denied FINRA'S charges, but both firms consented to its findings.

The FINRA'S press release in regards to this matter can be found at: http://www.finra.org/Newsroom/NewsReleases/2011/P124006

On July 11, 2011, the Securities and Exchange Commission ("SEC") brought and settled charges that Janney Montgomery Scott ("Janney"), a dually-registered broker dealer and investment advisor, failed to establish and enforce policies and procedures, as required by the Securities and Exchange Act of 1934, to protect material nonpublic information from misuse.

The SEC's order instituting proceedings alleges that from at least January 2005 through July 2009, Janney's policies for its Equity Capital Markets division ("ECM") were insufficient and lacking. The SEC's order found that in some instances that Janney failed to: (1) monitor contacts between investment bankers and research analysts; (2) monitor trading in securities of firms on the ECM Compliance watch list; (3) failed to require its investment bankers to receive clearance prior to making personal trades; enforce its policy that required its employees to receive approval to have brokerage accounts at other firms.

In anticipation of the institution of proceedings by the SEC, Janney proposed an offer of settlement, which the SEC accepted. Janney did not deny or admit to any findings of the SEC, but agreed to be censured and pay an $850,000 penalty. Janney also agreed to cease and desist from committing or causing any violations of Section 15(g) of the Securities Exchange Act of 1934.

The SEC's order can be found at: http://www.sec.gov/litigation/admin/2011/34-64855.pdf

The SEC's press release in regards to this matter can be found at: http://www.sec.gov/news/press/2011/2011-144.htm