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The following story was published in Caribbean Business on March 18, 2014:
OFS Securities has been fined more than $40,000 by the Financial Industry Regulatory Authority (FINRA) for purchasing Puerto Rico bonds for its own account and selling them to customers at an “unreasonable” markup.
FINRA also censured OFS Securities and ordered it to pay $13,277.86, plus interest, in restitution to customers.
San Juan-based OFS Securities agreed to the FINRA penalties but did not admit or deny the findings.
OFS Securities used to operate as BBVA Securities of Puerto Rico. It was folded into Oriental Financial Services Corp. when that bank bought BBVA’s island operations last year. The transactions faulted in the FINRA ruling were executed in the first quarter of 2011, before Oriental’s acquisition of BBVA’s Puerto Rico unit.
The violations and sanctions were reported in FINRA’s latest monthly disciplinary actions catalog released this week.
FINRA found that the markup on the municipal securities (which ranged from 5.8 percent percent to 12.3 percent) “was not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the broker, dealer or municipal securities dealer as to the fair market value of the securities at the time of the transaction and of any securities exchanged or traded in connection with the transaction.”
The eight transactions cited by FINRA included three sets of trades of at least $500,000 in Infrastructure Financing Authority bonds at markups of 11.73 percent. There were also two sales tax bond deals of $350,000 and $500,000, respectively.
FINRA said OFS Securities failed to enforce its own “policy not to permit a markup, mark-down, or commission in excess of 3%.”
The financial industry watchdog also said the markups were not fair and reasonable given “the expense involved in effecting the transaction; the fact that the broker, dealer or municipal securities dealer is entitled to a profit; and the total dollar amount of the transaction.”