Investment firm hit with $1M fine for alleged markups

The Financial Industry Regulatory Authority Inc. today hit a Miami investment firm with a seven-figure penalty for allegedly ripping off customers on bond sales.

Finra fined StateTrust Investments Inc. $1.045 million and ordered $353,319 in restitution to customers for charging unfair prices in 563 corporate-bond transactions between March 2007 and June 2010.

Finra suspended the company’s chief trader, Jose Luis Turnes, for six months and fined him $75,000. In April 2012, Finra suspended Jeffrey Cimbal, the firm’s chief compliance officer, for five months and fined him $20,000 for failing to supervise Mr. Turnes.

StateTrust neither admitting nor denied the charges in settling the case. The firm did not respond to a request for comment.

In 85 of the transactions, the company increased the price of the bonds it sold 8% or more above the market rate or bought bonds from customers at 8% or less below the market rate and then sold them to bank and insurance affiliates, of whom Mr. Turnes was the largest indirect shareholder, at a slight markup.

The company did not disclose to customers the pricing discrepancies on the 85 transactions, which ranged from 8.03% to 23.58%.

In 227 of the deals, the company marked up or marked down the bond prices more than 5%. The fraudulent charges on all the transactions totaled $336,472.03.

“Finra will continue to aggressively pursue firms and individuals who charge customers excessive markups and markdowns,” Thomas Gira, Finra’s executive vice president and head of market regulation, said in a statement.

StateTrust, which employs about 17 people and also has a branch office in Caracas, Venezuela, has had a history of disciplinary trouble. Finra fined the firm for trade reporting deficiencies in 2007, 2008, 2011 and 2012.