David Lerner Associates has been fined $3.7 million by Finra for overpricing fees charged to customers for muni bonds and CMOs from January 2005 to January 2007.
The firm was fined $2.3 million by a Finra hearing panel, ordered to make restitution to customers of $1.4 million and pay interest.
The firm denies the allegations in the Finra complaint and says Finra is attempting "to unfairly seize funds from a broker-dealer by making allegations which are simply not based on facts, recognized industry standards or current law."
The firm plans to appeal the ruling, according to a statement issued by David Lerner Associates Inc., based on Long Island.
Finra also suspended the firm's head trader William Mason from the securities industry for six months and fined him $200,000. He also plans to appeal, according to the firm.
The Finra panel says the firm's trades reflected a pattern of intentional excessive markups in investments that were available at significantly lower prices than the firm charged. The investments themselves were rated investment grade or above.
The firm continued its unfair pricing after a Finra warning letter, and Finra took into account the fact that the firm had not taken corrective measures. The firm denies the allegations.
In the recent decision by Finra, the panel said markups on the municipal bonds ranged from 3.01% to 5.78% and markups charged on collateralized mortgage obligations (CMOs) were 4.02% to 12.39%. The markup was charged no matter how much the customer invested in the CMO, Finra says. Finra rules require markups to be fair and reasonable and based, in part, on how much money is invested.The ruling affects about 5% of David Lerner's transactions. The firm notes that 95% of its transactions have not been challenged and says the challenges to the remaining ones are wrong.