Living up to its warnings, Finra has walloped five firms for overcharging for postage and handling
Living up to its warnings, Finra has walloped five firms for overcharging for postage and handling.
Last Wednesday, the Financial Industry Regulatory Authority Inc. said it fined five firms a total of $910,000 for overcharging clients for handling transactions. The firms were “understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services,” Finra said in a statement.
The five firms and respective fines were Pointe Capital Inc. of Boca Raton, Fla., fined $300,000; John Thomas Financial of New York, $275,000; First Midwest Securities Inc. of Bloomington Ill., $150,000; A&F Financial Securities Inc. of Syosset, N.Y., $125,000; and Salomon Whitney LLC of Babylon Village, N.Y., $60,000.
Finra chief executive Richard Ketchum in May warned an audience of brokerage executives at the self-regulator's annual meeting that it was making inquiries into firms' overcharging clients for such services.
The five firms allegedly were using the practice to gouge clients, Finra said. “With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction-based remuneration for the firm and thus were far in excess of the cost of the handling-related service the firms provided,” Finra said in the statement.
In May, brokerage executives acknowledged that postage and handling fees charged by broker-dealers ranged from $3 or $4 to as high as $75 per transaction. Desperate for profits since the market collapse, some firms have been inflating postage and handling fees since late 2008, they said.
According to Finra, Pointe Capital charged a handling fee as high as $95 per trade, along with a commission. John Thomas charged as high as $75 per trade and First Midwest charged as high as $99. A&F charged as high as $65 per trade, while Salomon Whitney charged as high as $69.
In settling Finra's action, the firms agreed to implement corrective action to remedy the handling-fee-related violations, Finra said. In reaching the settlements, the firms neither admitted nor denied the charges but consented to the entry of the findings.
“John Thomas Financial is pleased it was able to resolve its differences with Finra on that issue without litigation on something that is an industrywide issue,” said Robert Bursky, the firm's general counsel.
Pointe Capital was acquired in December 2009 by a group led by John Sykes, the former chairman and largest shareholder of the holding company for the defunct Gunn-Allen Financial Inc., and now is known as JHS Capital Advisors Inc.
“We've been working with Finra to conclude the Pointe Capital legacy issues, and the firm settled in the best interest of closure, said spokeswoman Eileen Canady. The firm has fixed its issues and has a code of ethics, she said.
Executives at the three other firms did not return calls by press time.
Email Bruce Kelly at bkelly@investmentnews.com
