Finra fines five firms almost $1M over fees

Finds evidence of overcharges for transactions, postage

Sep 7, 2011 @ 3:42 pm

By Bruce Kelly

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Living up to its warnings of this year, the Financial Industry Regulatory Authority Inc. said today that it has walloped several firms for overcharging for postage and handling.

In May, Finra chief executive Richard Ketchum warned an audience of brokerage executives at the self-regulator’s annual meeting in Washington that it was making inquiries into firms’ overcharging clients for such services. This morning, Finra said it fined five firms a total of $910,000 for overcharging clients on handling transactions.

Mr. Ketchum earlier said: “We are taking a close look at excess charges for routine services, which some firms appear to be treating as an additional de facto commission. You can expect to see some enforcement activity in this area with respect to particularly egregious examples.”

Finra today said in a statement that the five firms were “understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services.”

Firms allegedly were using the practice to gouge clients, Finra said. “With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction-based remuneration for the firm and thus were far in excess of the cost of the handling-related service the firms provided.”

The five firms and respective fines were: Pointe Capital Inc. of Boca Raton, Fla., fined $300,000; John Thomas Financial of New York, $275,000; First Midwest Securities Inc. of Bloomington Ill., $150,000; A&F Financial Securities Inc. of Syosset, N.Y., $125,000; and Salomon Whitney LLC of Babylon Village, N.Y., $60,000.

After Mr. Ketchum made his comments, brokerage executives said postage and handling fees charged by broker-dealers ranged from $3 or $4 to as high as $75 per transaction. Desperate for profits since the market collapse, some firms have been inflating postage and handling fees since late 2008, they said.

According to Finra, Pointe Capital charged a handling fee as high as $95 per trade, along with a commission. John Thomas charged as high as $75 per trade, and First Midwest charged as high as $99. A&F charged as high as $65 per trade, while Salomon Whitney charged as high as $69.

In settling Finra’s action, the firms agreed to implement corrective action to remedy the handling-fee-related violations, Finra said. In reaching the settlements, the firms neither admitted no denied the charges but consented to the entry of the findings.

“John Thomas Financial is pleased it was able to resolve its differences with Finra on that issue without litigation on something that is an industrywide issue,” said Robert Bursky, the firm’s general counsel.

Pointe Capital is now known as JHS Capital Advisors Inc., and was acquired in December 2009 by a group led by John Sykes, the former chairman and largest shareholder of the holding company for the defunct GunnAllen Financial Inc.

“We’ve been working with Finra to conclude the Pointe Capital legacy issues and the firm settled in the best interest of closure, said Eileen Canady, a spokesperson. The firm has fixed its issues and has a code of ethics, she said.

Executives with the three other firms did not return a call by 4:00 Wednesday afternoon to comment.

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