Without admitting or denying the findings, Falla consented to the sanction and to the findings that he failed to disclose the use of non-market foreign exchange (FX) rates in connection with a series of bond swap transactions in retail customer accounts. Effective February 9, 2017 Falla barred from association with any FINRA member in any capacity.
The findings stated that Falla’s member firm, operating through Falla, executed numerous retail customer transactions with inaccurate valuations when converted into U.S. dollars, which affected multiple customer accounts.
The findings also stated that the firm’s confirmations and account statements did not disclose to customers the use of a non-market FX rate or the excessive nature of the markups in connection with the bond swap transactions. Falla did not disclose that he used non-market FX rates away from the spot rate to value retail customer bond transactions, and did not disclose to retail customers its impact on the valuation of the bond swap transactions.
Disciplinary and Other FINRA actions findings also included that Falla entered or caused the entry of non-market FX rates into the firm’s trade execution system in connection with bond swap transactions involving foreign currency denominated bonds in retail customer accounts, thereby causing the firm to maintain inaccurate books and records.
FINRA found that the firm, acting through Falla, failed to establish and maintain a supervisory system and further failed to establish, maintain, and enforce WSPs for the firm that were reasonably designed to identify and prevent the use of non-market FX rates, excessive markups, short-term trading, undue concentration and unsuitable use of margin in customer accounts.
Previously in December 2016 Alejandro Falla was suspended for 18 months and fined $60,000, which has gone unpaid. Falla violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010 by charging the firm’s customers undisclosed markups and markdowns in fixed income transactions. Prior to the transactions, the firm had agreed with an investment advisor acting for the firm’s Florida customers, that the markups and markdowns on the transactions would be no more than 15 basis points. Falla did not honor that agreement; instead, he entered into a series of secret, pre-arranged transactions with another broker-dealer to create the false appearance that Falla and the firm were honoring the 15 basis points agreement. Falla made misleading representations concerning, and failed to disclose to the investment advisor or the customers, the true acquisition costs and sale proceeds of the bonds he had purchased from and/or sold to the customers. He failed to disclose his pre-arranged trades with the broker-dealer; and to disclose that he had charged markups/markdowns that exceeded 15 basis points on each transaction.
Consequently, Falla misled the investment advisor and the customers into believing that the firm had charged only 15 basis points for each of the customer transactions, as was contemplated and agreed to by the investment advisor and the firm, when in fact the true cost of each transaction to the customers, and profits made by the firm, were much higher.
As a result of Falla’s misconduct, the firm charged additional markups and markdowns totaling $99,543.21, which was not disclosed to the investment advisor or the customers.
If you feel you have been misled regarding exchange rates or service fees and wish to discuss legal action, please contact Darren Blum at 1-877-786-2552 (1-877-STOCK LAW), www.stockattorneys.com for a free consultation