According to FINRA, J.W. Korth & Company, Limited Partnership was censured and ordered to pay $29,268 in restitution to customers for charging excessive markups and markdowns on municipal and corporate bond transactions. The SEC affirmed FINRA's disciplinary action and findings.

The firm charged customers excessive markups on 38 sales of municipal bonds, with markups ranging from 3.10 percent to 8.33 percent. These markups violated MSRB Rules G-17 and G-30, which require fair dealing and fair pricing in municipal securities transactions. Additionally, the firm charged excessive markups and markdowns on nine sales and four purchases of corporate bonds, with markups and markdowns ranging from 3.24 percent to 5.56 percent.

Markups and markdowns represent the firm's compensation for facilitating bond transactions when it acts as principal. While firms are entitled to reasonable compensation, FINRA and the MSRB require that such compensation be fair and reasonable considering all relevant circumstances. Factors include the type of security, its availability, price, amount of money involved, and the services rendered.

Markups in the 5-8 percent range are generally considered excessive, particularly for investment-grade bonds traded in active markets. These excessive charges significantly reduced the returns customers received on their investments. On a $100,000 bond purchase, an 8 percent markup means the customer paid $8,000 above a fair price, immediately reducing their investment value.

The SEC upheld FINRA's findings and sanctions, which included ordering the firm to retain an independent consultant to review its pricing procedures. This remedial measure is designed to help prevent future violations by improving the firm's systems for ensuring fair pricing.

For investors, particularly those investing in bonds, this case highlights the importance of understanding and questioning the prices paid for fixed-income securities. Bond pricing can be opaque, and excessive markups may not be immediately apparent. Investors should ask their financial professional how the firm is compensated on bond transactions, request disclosure of the markup or markdown, and compare prices to recent market transactions for similar bonds.