According to FINRA, Rush Flowers Harding III was assessed a deferred fine of $30,000 and suspended from association with any FINRA member in all capacities for one year for willfully violating MSRB Rules G-18(b) and G-17.

Harding's member firm had agreed with its bank affiliate not to sell the affiliate secondary market municipal bonds with a markup due to the affiliate's banking regulators prohibiting such markups. Harding contravened this arrangement and circumvented the firm's prohibition against markups to the affiliate by indirectly selling bonds with markups to the affiliate using third-party broker-dealers as intermediaries.

Harding offered marked-up bonds anonymously through a broker's broker, then informed another broker-dealer that the bonds were available and of potential interest to his firm's affiliate. The other broker-dealer purchased the bonds and sold them, with an additional markup, to the firm's affiliate. In total, the affiliate paid $918,476 in aggregate markups and fees to the firm and third-party broker-dealers that it would not have paid had Harding sold the bonds directly in the agreed-upon manner.

After discovering the transactions, the firm permitted Harding to resign and reimbursed its affiliate $918,476, obtaining contribution from Harding for a portion of that amount. The conduct violated MSRB rules governing fair pricing and dealing in municipal securities.

This case demonstrates serious misconduct involving deliberate circumvention of firm policies designed to manage conflicts of interest and comply with regulatory requirements. By interposing third-party broker-dealers to disguise markups that were prohibited under the firm's arrangement with its affiliate, Harding violated his obligations to deal fairly and honestly in municipal securities transactions. Municipal bond investors should understand that MSRB rules govern fair pricing, and that interpositioning arrangements that serve no legitimate economic purpose except to generate additional costs violate these rules.