UBS Financial Services has agreed to pay a $750,000 fine to settle a Finra case over the misclassification of municipal bond interest payments.
Finra signed off on the settlement last week.
The regulator claimed that from July 2009 through December 2013, UBS paid out $1,165,000 in tax-free interest to 4,371 clients who held municipal bonds. But because the firm was actually short those bonds, the interest paid came from UBS directly rather than the bond issuers, and hence the interest received was taxable as ordinary income.
The settlement said UBS has “agreed in principal with the IRS to make a payment to relieve its customers of the burden of filing amended tax returns and paying additional federal income tax.”
The amount of the payment to be made to the IRS was not disclosed.
Finra said the short bond positions resulted primarily from trading errors at the firm's retail branches.
The firm has also implemented “revised procedures” to minimize short positions and properly report interest, Finra said.
UBS did not admit to the charges in agreeing to settle.
“The firm is pleased to have resolved this matter,” said UBS spokeswoman Karina Byrne in a email.