FINRA Fines Santander Securities LLC $6.4 Million For Supervisory Failures

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FINRA Fines Santander Securities LLC $6.4 Million For Supervisory Failures

FINRA mandated that Santander Securities LLC pay about $4.3 million in restitution to a number of clients who were solicited to buy Puerto Rican Municipal Bonds. Further, the firm will pay restitution of $121,000 and make offers of rescission to buy back the securities sold to particular customers impacted by the firm’s failure to supervise employee trading. FINRA additionally fined the firm $2 million for supervisory failures pertaining to sales of the bonds and Puerto Rican closed-end funds and for failing to supervise employee trading in its Puerto Rican branch office.

Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “This is a strong reminder to firms that they must focus on customers’ exposure to market risks and suitability, particularly in those markets like Puerto Rico that present unique risks and challenges.”

FINRA’s investigation discovered that from December 2012 to October 2013, Santander did not ensure that its proprietary product risk-classification tool accurately reflected market risks on investing in the municipal bonds at issue, and failed to adequately supervise its clients’ use of margin and concentrated positions in their accounts. The firm’s systems and procedures did not require a review or assessment of its product risk-classification tool, used by Santander’s representatives when recommending products to customers, to determine whether it factored in the changed risks of investing in Puerto Rican Municipal Bonds.

Most notably, Santander did not review or assess the tool’s municipal bond risk classifications after major market events such as the December 13, 2012, Moody’s downgrade of certain municipal bonds to one level above junk. The day after the Moody’s downgrade, Santander ceased buying Puerto Rican Municipal Bonds that its Puerto Rican customers wanted to sell and accelerated its efforts to reduce the firm’s inventory of the bonds.

During this same time period, Santander did not have systems or procedures in place to ensure that any comprehensive review of accounts with significant concentration in Puerto Rican bonds and closed-end funds was conducted to determine whether new purchases were suitable in light of existing positions.

Additionally, FINRA found that Santander failed to reasonably supervise employee trading in its Puerto Rico office with a view toward mitigating potential conflicts of interest where customer orders were filled through positions held in their own broker’s personal brokerage account. Because Santander did not have adequate systems in place, approximately 400 of these types of transactions went undetected.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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