Raymond James has agreed to pay $1.15 million to settle charges of supervisory failures of its two brokerage units that in one case led to a commission scheme by father-son team that overcharged customers, according to the Financial Industry Regulatory Authority.

Raymond James Financial Services (RJFS), the firm’s independent channel and Raymond James & Associates (RJA), the employee advisor channel, also were censured by the regulator.

According to the Finra letter of acceptance, waiver and consent (AWC), from at least  January 2012 through April 2018, RJFS failed to heed multiple red flags that the two registered representatives were excessively charging commission to seven of their institutional customers.

The AWC did not identify the representatives by name, but it revealed the Central Registration Depository (CRD) numbers that belonged to former brokers Taek Man Chong and Jason Taek Chong.

Both representatives were barred by Finra in June 2018 for failing to cooperate with the investigation.

Separately, Finra said from January 2012 to February 2020, RJA and RJFS “failed to have a qualified and registered principal authorize changes to the account name or designation on more than 7,500 equity orders.” And as a result, one customer lost about $100,000. A former RJFS registered representative, Finra noted, “changed the account designation on certain orders from ( or to) the customer to (or from) his own account without principal review.”

RJFS consented to an $800,000 fine plus restitution of $48,574.79, plus interest, and RJA consented to a $300,000 fine, according to the AWC, which also noted that the firm reimbursed most of the customers for their loss.

Asked to respond, Raymond James spokeswoman Jana Fuller said, "We're not commenting." 

Finra said the alleged wrongdoing of the representatives came to light after RJFS filed Uniform Termination Notices for Securities Industry Registration (Forms U5) in May 2018, which noted that the  two representatives had voluntarily resigned while under investigation by the firm. Also, in February 2019, both RJA and RJFS reported on to Finra that they “failed to undertake the principal review required by Finra Rule 4515.”

The Chongs, who worked in an RJFS branch office in Mercer Island, Wash., targeted foreign institutions whose buy and sell orders involved large blocks of equities, Finra said, noting that the duo agreed to a per share commission rate with their customers.

Finra said the duo over the six-year period overcharged the institutional customers “by calling the trading desk after placing the orders and instructing the trading desk to increase the commission being charged prior to execution and/or while the orders were being worked by the desk.” 

They covered up their misconduct by creating their own trade confirmations, which contained misleading information, including understating commissions, and emailing them to customers, Finra said.

The scheme was exposed in or about April 2018 when RJFS flagged and reviewed an unusually large order for one of the customers, Finra said. By that time, the customers were overcharged about $2.4 million.

Finra said under RJFS’ policy, representatives were not allowed to use trade confirmations they created or mislead the public in communication materials. The firm also surveilled email communication to detect any such prohibited confirmations and potentially misleading statements, Finra said.

In fact, Finra noted that the email surveillance system electronically flagged hundreds of emails sent to customers by the Chongs that contained the misleading trade confirmations as attachments. And though the flagged emails were reviewed by the communications surveillance team, they failed to examine the attached confirmations, Finra said. “Had the team done so, it would have discovered that the representatives were misrepresenting commissions charged on trades, as well as misstating the share price,” Finra said.

Further, the regulator said RJFS neglected to follow up and check the confirmations created by the representatives for accuracy after its compliance staff conducted a branch inspection in April 2017 and escalated the matter.

Taek Man Chong had been in the industry since 1986 and worked at several firms before joining Raymond James in 2000, where he spent 17 years. Jason Taek Chong started in the industry in 2012 with Raymond James.