FINRA Sanctions Five Firms $4.4 Million for Using Municipal and State Bond Funds to Pay Lobbyists

  FINRA Sanctions Five Firms $4.4 Million for Using Municipal and State Bond
  Funds to Pay Lobbyists

Business Wire

WASHINGTON -- December 27, 2012

The Financial Industry Regulatory Authority (FINRA) today announced that it
has sanctioned five firms a total of more than $4.48 million for unfairly
obtaining the reimbursement of fees they paid to the California Public
Securities Association (Cal PSA) from the proceeds of municipal and state bond
offerings. The firms violated fair dealing and supervisory rules of the
Municipal Securities Rulemaking Board by obtaining reimbursement for these
voluntary payments to pay the lobbying group. The firms were fined more than
$3.35 million and are required to pay a total of $1.13 million in restitution
to certain issuers in California.

FINRA sanctioned the following firms:

  *Citigroup – $888,000 fine and $391,106 in restitution
  *Goldman Sachs – $568,000 fine and $115,997 in restitution
  *JP Morgan – $465,700 fine and $166,676 in restitution
  *Merrill Lynch – $787,000 fine and $287,200 in restitution
  *Morgan Stanley – $647,700 fine and $170,054 in restitution

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said,
“Issuers are entitled to know what they are paying for and why. It was unfair
for these underwriters to pass along the costs of their Cal PSA membership to
the municipal and state bond taxpayers, neglecting to disclose that these
costs were unrelated to the bond deals.”

FINRA found that between January 2006 and December 2010, the firms made
payments to Cal PSA, an association that engages in a variety of political
activities including lobbying on behalf of companies seeking to influence
California state government, and requested that those voluntary payments be
reimbursed as underwriting expenses from the proceeds of the negotiated
municipal and state bond offerings. This practice was unfair as Cal PSA’s
activities did not bear a direct relationship to those bond offerings and were
not underwriting expenses. Also, the firms did not adequately disclose the
nature of the fees to issuers and failed to establish reasonable procedures in
this area. In fact, the need for adequate policies and procedures in this area
was heightened in light of the nature of Cal PSA’s political activities. In
addition, Citigroup, Goldman, Merrill Lynch and Morgan Stanley failed to have
adequate systems and written supervisory procedures reasonably designed to
monitor how the municipal securities associations used the funds that these
firms paid.

In settling these matters, the firms neither admitted nor denied the charges,
but consented to the entry of FINRA's findings.

FINRA's investigation was conducted by Carrie Dunican and Kristina Juntunen
under the supervision of Gina Petrocelli and Susan Light with the assistance
of Malcolm Northam and Cynthia Friedlander.

Investors can obtain more information about, and the disciplinary record of,
any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck^®.
FINRA makes BrokerCheck available at no charge. In 2011, members of the public
used this service to conduct 14.2 million reviews of broker or firm records.
Investors can access BrokerCheck at or by calling
(800) 289-9999. Investors may find copies of this disciplinary action as well
as other disciplinary documents in FINRA's Disciplinary Actions Online

FINRA, the Financial Industry Regulatory Authority, is the largest independent
regulator for all securities firms doing business in the United States. FINRA
is dedicated to investor protection and market integrity through effective and
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Financial Industry Regulatory Authority (FINRA)
Michelle Ong, 202-728-8464
Nancy Condon, 202-728-8379
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