← Broker database 2024-07-29
Riedl First Securities Ordered to Pay $102,181 in Restitution for Excessive Bond Mark-ups
According to FINRA, Riedl First Securities Company of Kansas was censured, fined $60,000, and ordered to pay $102,181.97 in restitution to customers on July 29, 2024, for charging customers unfair prices in corporate bond transactions.
The violations occurred in proceeds transactions, where the firm sold corporate bonds and then used the proceeds of the sale to purchase new corporate bonds on the same day. The firm determined the mark-ups on purchases in proceeds transactions without considering the mark-downs on the corresponding sales, and the total mark-ups/mark-downs were excessive considering all the relevant factors. The mark-ups/mark-downs were not justified by market conditions, execution cost, the type or availability of the security, the value of any brokerage services rendered by the firm, or any other relevant factor.
The firm also failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with fair pricing requirements set forth in FINRA and MSRB rules. The firm failed to describe steps it should take to ensure that its pricing decisions on principal trades with customers were based on the pricing information identified in FINRA and MSRB rules. The firm's procedures did not require the prevailing market price to be the basis for principal trades, and the firm did not enforce its procedures or apply the relevant factors when determining appropriate mark-ups and mark-downs on specific transactions.
This case illustrates that in proceeds transactions, firms must consider the total compensation received from both the sale and purchase transactions when determining whether pricing is fair. Investors engaging in bond transactions should be aware that excessive mark-ups and mark-downs can significantly erode investment returns and should question charges that seem unreasonable.