Moloney Securities Co. Inc. was recently censured and fined $100,000 and required to pay $15,574.13, in restitution to a customer. The FINRA findings stated that Moloney, from January 2013 through April 2015, violated FINRA Rules 3110 and 2010 and NASD Rule 3010 by failing to create and enforce a supervisory system to comply with FINRA’s suitability rule regarding qualitative suitability and concentration in high-risk products.
- Moloney Failed to Establish and Maintain a Supervisory System that Complied with FINRA Rule 2111.
FINRA discovered that Moloney did not provide any training to any of its regional managers on how to review recommendations of products or issue instructions or alerts. The electronic surveillance system used was not designed to look for concentration in high-risk products or qualitative suitability. While general instructions on potential suitability concerns were provided to the regional managers, FINRA determined that Moloney did not provide reasonable guidance, written procedures, training programs, or specific tools to properly handle those concerns.
This lack of proper preparation was apparent when a Moloney registered representative recommended that five senior customers purchase risky oil and gas limited partnerships and oil and gas exchange traded funds which caused them to become concentrated in these products. These risky transactions were not reviewed by any representative or manager, nor were they ever flagged by the electronic surveillance system. Consequently, one of the five customers invested 64% of her net worth into the funds and suffered unrealized losses of $15,574.13. The firm later paid $195,500 in restitution to the other four senior customers.
- Moloney Failed to Establish and Maintain a Supervisory System That Could Identify Potential Instances of “Marking the Close.”
FINRA also found that Moloney’s supervisory system was not reasonably designed to detect or prevent the manipulative trading strategy, known as “marking the close,” when transactions are executed at or near the end of the trading day to directly influence the security’s closing price. Because this allows the person influencing the price to benefit from the change, it is a violation of FINRA Rules and the Securities Exchange Act of 1934. In short, Moloney failed to provide a proper system to prevent this type of manipulation of prices from occurring.
Here, Moloney failed to reasonably investigate two of its representatives who frequently executed purchase or sale orders of common stock of Company X, a thinly traded security, at or near the close of the market during 2013.