More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Merrill Lynch (MER) and Morgan Stanley (MS) neither admitted nor denied the charges, but consented to the entry of FINRA’s findings in the matter; in addition, they were all fined and assessed restitution fees for their dealings with the California Public Securities Association (Cal PSA), an association that engages in a variety of political activities including lobbying on behalf of companies seeking to influence California state government.
According to FINRA’s findings, between January 2006 and December 2010, the firms made payments to Cal PSA, and requested that those voluntary payments be reimbursed as underwriting expenses from the proceeds of the negotiated municipal and state bond offerings even though Cal PSA's activities did not bear a direct relationship to those bond offerings and were not underwriting expenses.
The firms also failed to adequately disclose the nature of the fees to issuers, and failed to establish reasonable procedures in this area—the nature of Cal PSA’s political activities actually called to attention the fact that adequate policies and procedures in this area were needed. In addition, Citigroup, Goldman, Merrill Lynch and Morgan Stanley failed to have adequate systems and written supervisory procedures reasonably designed to monitor how the municipal securities associations used the funds that these firms paid.
Brad Bennett, FINRA executive vice president and chief of enforcement, said in a statement, "Issuers are entitled to know what they are paying for and why. It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals."
Citigroup agreed to an $888,000 fine and $391,106 in restitution; Goldman Sachs to a $568,000 fine and $115,997 in restitution; JP Morgan to a $465,700 fine and $166,676 in restitution; Merrill Lynch to a $787,000 fine and $287,200 in restitution; and Morgan Stanley to a $647,700 fine and $170,054 in restitution.