FINRA Fines Madison Avenue Securities After Investors Pay Unnecessary Sale Charges
The Financial Industry Regulatory Authority censured and fined Madison Avenue Securities, a San Diego-based broker-dealer, for failing to establish, maintain, and enforce a supervisory system, including written supervisory procedures.
From January 2016 through December 2018, FINRA says 12 firm customers purchased mutual funds in multiple different mutual fund families, either simultaneously or sequentially, in transactions submitted through the electronic order entry system. These customers’ sales charges would have been reduced had they purchased mutual funds all within one mutual fund family, rather than among several fund families.
In addition to the customers identified, in June 2018 another firm customer simultaneously purchased six mutual funds in five different mutual fund families at the recommendation of a Madison Avenue representative in transactions submitted via the firm’s electronic order entry system. At the time, the customer already held mutual funds away from the firm. Although the strategy involved highly rated funds, the customer’s sales charges would have been reduced if he had purchased mutual funds in one mutual fund family and reduced even further if he had invested in the mutual fund family of the funds he held away from the firm.
FINRA says since December 2018, the firm has revised its supervisory system, including WSPs, regarding mutual fund supervision, including further describing the T-plus-1 and surveillance alert review processes for mutual fund transactions.
The firm consented to a censure, $50,000 fine and restitution of $63,296 for the 12 firm customers.
Previously, in May 2022, Madison Avenue agreed to a settlement with the Securities and Exchange Commission regarding allegations that the firm breached its fiduciary duty by failing to provide full and fair disclosures regarding conflicts of interest associated with its receipt of third-party compensation based on advisory client investments. The SEC reports that, among other things, the firm also breached its duty by causing advisory clients to invest in share classes of mutual funds when share classes of the same funds were available to clients that presented a more favorable value.
The firm agreed to pay a $150,000 fine, disgorgement of $579,523.76 and prejudgment interest of $73,649.93, and to an undertaking.
Editor’s Note: The original version of this article misidentified the name of the broker-dealer censured and fined by FINRA. The headline was subsequently changed to properly identify Madison Avenue Securities as the firm in question. The DI Wire apologizes for the error.
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