We noted earlier how absurd it seemed that Stanford Financial got dinged with a measly $10,000 fine for misrepresenting the safety of its CDs. We found the exact citation here in a roundup of FINRA enforcement actions from last January:
Stanford Group Company (CRD #39285, Houston, Texas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $10,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that, in connection with the offers and sales of certificates of deposit (CDs) a bank affiliate issued, it distributed sales literature that did not comply with FINRA advertising rules, in that it failed to disclose that the affiliation between the firm and the bank could create a conflict of interest in connection with its offers and sales of the bank-issued CDs. The findings stated that the brochures failed to present fair and balanced treatment of the risks and potential benefits of a CD investment, failed to contain the name of the firm using the materials and contained misleading, unfair and unbalanced information. (FINRA Case #2005002203701)
Seriously, even under the most charitable view towards the efficacy of these enforcement agencies, what is the benefit of a $10k fine? It’s not a deterrent in any way, especially considering that they didn’t even have to admit wrongdoing.
But the actual infraction is severe. Conflicts of interest, misstating risk, etc. Remember, Stanford was selling about $1 billion worth of these so-called CDs each year, so to misstate the risk of these products is actually pretty gigantic, affecting tons of potential victims. Meanwhile, if you look at the rest of the document you’ll see a lot of similarly-sized fines, with few folks admitting to any wrongdoing.
Does FINRA’s enforcement serve any purpose?
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