Los Angeles-based Wedbush Securities has been penalized by the Financial Industry Regulatory Authority over several rules violations, according to Investment News.
The firm, which did not admit or deny the allegations, was censured and fined $150,000.
FINRA said that between June 2018 and December 2022, Wedbush violated Section 15(c)(3) of the Securities Exchange Act of 1934, Exchange Act Rule 15c3-3 and FINRA Rule 2010 by failing to maintain possession or control of customers’ fully paid and excess margin securities, and also violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with Exchange Act Rule 15c3-3.
It was also determined that between August 2022 and August 2023, Wedbush violated MSRB Rule G-15 and FINRA Rules 2232 and 2010 by failing to disclose required mark-up and mark-down information on retail customer confirmations. Wedbush also violated MSRB Rule G-27 and FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with MSRB Rule G-15 and FINRA Rule 2232.
With regards to the infractions on excess margin securities, FINRA states: “The firm did not combine credits and debits from separate accounts owned by the same customer (and opened under the same tax identification number) prior to calculating the securities having a market value in excess of 140% of the customer’s debit balance. Therefore, the firm overcalculated the number of shares that were available for rehypothecation (collateral to be used for the firm’s own purposes). This resulted in deficits in customers’ securities the firm was required to segregate. The amount of the firm’s segregation deficit varied during the relevant period, and at times exceeded 100,000 shares and $2 million in value.”
Regulators also determined that Wedbush failed to establish and maintain a reasonable system to achieve compliance with Exchange Act Rule 15c3-3’s possession or control requirements. The firm did not have reasonable systems in place to identify separate accounts owned by customers with the same tax identification number and to combine the credits and debits of the securities in those accounts prior to determining the amount of securities that it needed to segregate. Wedbush also did not provide guidance to firm employees on how to segregate securities where customers held multiple accounts with the same tax identification number to ensure that the firm did not improperly use customer securities, according to FINRA.
A separate issue addressed in FINRA’s letter of acceptance, waiver and consent alleged that Wedbush violated industry rules when it did not disclose required mark-up and mark-down information on retail customer confirmations. This information affects the prices of what customers pay for municipal and government bonds.
According to FINRA, Wedbush issued approximately 300 confirmations for municipal securities transactions to retail customers that did not include mark-ups and mark-downs expressed as a total dollar amount and as a percentage of the prevailing market price (PMP), and issued approximately 1,050 confirmations for corporate and agency debt transactions to retail customers that did not include mark-ups and mark-downs expressed as a total dollar amount and as a percentage of the PMP.
These failures resulted from Wedbush personnel failing to timely enter PMP into the firm’s order management system. Therefore, Wedbush violated MSRB Rule G-15 and FINRA Rules 2232 and 2010.
Wedbush Securities was previously fined $900,000 for trading violations called “failed-to-deliver positions,” which occur when a seller fails to deliver securities to the buyer when delivery is due. A year later, Wedbush was penalized $10 million by the SEC as part of a $289 million multi-firm settlement and penalties for firms over executives and traders using unofficial communications such as WhatsApp.
A Wedbush Securities spokesperson on Monday declined to comment about the FINRA penalty and settlement.
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