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Finra fines David Lerner Associates, trader for excessive markups
By Angela McDaniels
Tacoma, Wash., April 4 - The Financial Industry Regulatory Authority fined David Lerner Associates, Inc. and head trader William Mason for excessive markups on municipal bond and collateralized mortgage obligation transactions, according to a Finra news release.
A Finra hearing panel fined David Lerner Associates $2.3 million for the markups and related supervisory violations and ordered the firm to pay more than $1.4 million of restitution, plus interest, to affected customers.
The panel fined Mason $200,000 and suspended him for six months from the securities industry.
The panel found that David Lerner Associates and Mason charged retail customers excessive markups in more than 1,500 municipal bond transactions from January 2005 through January 2007 and in more than 1,700 CMO transactions from January 2005 through August 2007.
The panel said that the trades reflected a "pattern of intentional excessive markups" and that the municipal bonds and CMOs in the transactions were readily available in the market at significantly lower prices.
According to Finra, the markups ranged from 3.01% to 5.78% on the municipal bonds and from 4.02% to 12.39% on the CMOs.
The panel said David Lerner Associates received a letter of caution from Finra about its markup practices after a 2004 exam and a Wells Notice in July 2009. The panel's decision notes that "in keeping with their unwillingness to accept responsibility, DLA has not taken any corrective measures to improve their fixed income markups policies and practices."
The ruling resolves charges brought by Finra's Department of Enforcement in May 2010. The hearing panel's decision becomes final after 45 days unless it is appealed to Finra's National Adjudicatory Council or is called for review by the council.
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