Finra Fines Santander Unit Over Puerto Rico Bond Sales -- Update
October 13 2015 - 1:28PM
Dow Jones News
By Anna Prior And Ezequiel Minaya
A unit of Spain's Banco Santander SA agreed to pay roughly $6.4
million in a settlement with Wall Street's self-regulator regarding
supervisory failings tied to the sale of Puerto Rican municipal
bonds, which have plunged in value in recent years.
The Financial Industry Regulatory Authority on Tuesday said
Santander Securities LLC would pay a $2 million fine for
supervisory failures related to sales of individual Puerto Rico
bonds and closed-end funds, and for failing to reasonably supervise
employee trading at the firm's Puerto Rico branch.
In addition, Santander agreed to pay about $4.3 million in
restitution to certain customers, as well as $121,000 in
restitution and an offer to buy back the securities sold to certain
customers who were affected by the firm's failure to supervise
employee trading, Finra said.
The securities industry's self-regulator found that for a
10-month period starting in December 2012, 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 added that Santander didn't revise the risk-tool
classifications following Moody's Investors Service's downgrade of
some of the island's municipal bonds to a notch above junk
territory in December 2012. The day after the move, Santander
allegedly stopped buying Puerto Rican municipal bonds being sold by
customers and accelerated efforts to dump its inventory.
As is customary, Santander neither admitted nor denied the
regulator's findings, according to the Finra disciplinary document,
posted on the regulator's website.
A Santander spokeswoman said 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."
Tuesday's development comes as Puerto Rico's financial crisis
continues to draw scrutiny from U.S. lawmakers and regulators. Last
month, a measure to establish more robust federal oversight over
Puerto Rico's mutual-fund industry was introduced in Congress, and
a Senate committee held a hearing on Puerto Rico's financial
problems.
In addition, a unit of UBS Group AG in September agreed to pay
roughly $34 million in settlements with U.S. regulators for issues
tied to the sale of Puerto Rico bond funds. That included $15
million to settle charges from the Securities and Exchange
Commission, which said the unit failed to supervise a former broker
who had customers invest borrowed money in the bond funds, and
$18.5 million for a Finra fine and investor restitution.
The funds and municipal bonds sold by UBS and other brokerages
were popular among island residents in part due to generous tax
advantages.
But Puerto Rico has been facing a sluggish economy and high
unemployment for years, and officials have been seeking to
restructure the island's $72 billion debt load. Gov. Alejandro
García Padilla has called the island's debt unpayable, and many
Puerto Rico bonds are trading well below face value.
Write to Anna Prior at anna.prior@wsj.com and Ezequiel Minaya at
ezequiel.minaya@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 13, 2015 13:13 ET (17:13 GMT)
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