Finra Fines Santander Unit Over Puerto Rican Bond Sales
October 13 2015 - 12:34PM
Dow Jones News
By Ezequiel Minaya
Wall Street's self-regulator ordered a unit of Spanish bank
Banco Santander SA to pay roughly $6.4 million in restitution to
investors who were solicited to buy Puerto Rican municipal
securities even as the island's financial crisis deepened.
The Financial Industry Regulatory Authority ordered Santander
Securities LLC to pay $4.3 million to certain customers solicited
to buy Puerto Rican municipal bonds and an additional $2 million
for supervisory failures linked to sales of the securities and
Puerto Rican closed-end funds.
"This is a strong reminder to firms that they must focus on
customers' exposure to market risks and suitability, particularly
in those markets like Puerto Rico that present unique risks and
challenges," said Brad Bennett, Finra's chief of enforcement, in a
news release.
Puerto Rico bonds and bond funds plummeted in value in
mid-2013.
Finra said that between December 2012 and October 2013,
Santander didn't accurately reflect the dangers associated with the
Puerto Rican paper in its risk-classification tool and failed to
adequately supervise its customers' use of margin and concentrated
positions in their accounts.
Finra said added that Santander didn't revise the risk-tool
classifications following Moody's Investors Service downgrade of
certain Puerto Rican municipal bonds to a notch above junk level in
December. The day after the move, Santander allegedly stopped
buying Puerto Rican municipal bonds being sold by customers and
accelerated efforts to dump its inventory.
Santander didn't admit or deny the charges. A Santander
spokeswoman says the firm "is pleased to resolve this matter and
will comply with the terms of the Finra letter," adding that "the
firm has taken steps to enhance its controls in connection with the
activities described in the Finra letter."
Brokerage firms operating in Puerto Rico have faced hundreds of
arbitration claims from clients who invested in closed-end funds,
which mostly invested in bonds issued by the Puerto Rican
government and its agencies.
Banco Santander is the eurozone's largest bank by market
value.
Anna Prior contributed to this article.
Write to Ezequiel Minaya at ezequiel.minaya@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 13, 2015 12:19 ET (16:19 GMT)
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