Securities Litigation

The Financial Institutions Regulatory Authority fined a UBS unit $750,000 for mistakenly reporting customers' municipal-bond-account interest was tax-exempt, when the firm's handling of the trades made it taxable instead. Because the brokerage itself paid over 4000 customers about $1.2 million in interest, the payments weren't tax exempt; to qualify, the interest must be paid directly by a municipal issuer. Instead, the firm had used the customers' long positions in those bonds to cover the firm's short positions and so made substitute interest payments. FINRA's AWC stated: "The Firm failed to consider - and its automated system that calculated the interest owed to customers did not take into account - whether the interest it paid to customers should be coded as non-taxable when the interest was paid by the Firm rather than the municipal issuer." FINRA cited the firm for violations of MSRB Rule G-27 regarding supervision and compliance, along with fair-dealing and record-keeping rules. The conduct occurred between 2009 and 2013. UBS settled the FINRA charges without admitting or denying liability. FINRA issued a warning on the issue in late July. We covered its Regulatory Notice 15-27 here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).