The Financial Industry Regulatory Authority (FINRA) has fined StateTrust Investments US$1.045 million and sanctioned the firm’s head trader, Jose Luis Turnes, for charging excessive markups and markdowns in fraudulent corporate bond transactions.
FINRA also ordered StateTrust to pay more than US$353,000 in restitution, plus interest, to customers who received unfair prices. In addition, Turnes was suspended for six months and fined US$75,000.
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In a related action in April 2012, Jeffrey Cimbal, StateTrust’s chief compliance officer, was fined US$20,000 and suspended for five months in a principal capacity for failing to supervise Turnes.
FINRA found that StateTrust charged excessive mark-ups/markdowns to customers in a total of 563 transactions. In 227 instances, the mark-ups or markdowns exceeded five percent. In 85 of those instances, StateTrust, acting through Turnes, charged excessive mark-ups and markdowns, ranging from eight percent to over 23% away from the prevailing market price, which constituted fraudulent transactions.
In each of the 85 instances, StateTrust either bought bonds from its bank or insurance affiliate and then sold the bonds to customers at a price that was eight percent or more away from the prevailing market; or bought bonds from customers at prices that were eight percent or more below the prevailing market, and then sold them to its bank or insurance affiliate at a slight mark-up. During that period, Turnes was also the chairman and largest indirect shareholder of the bank and insurance affiliates.
Thomas Gira, FINRA executive vice president and head of market regulation, said: "FINRA will continue to aggressively pursue firms and individuals who charge customers excessive mark-ups and markdowns. StateTrust charged customers unfair prices in fraudulent corporate fixed income transactions, and the firm and the chief compliance officer failed to properly supervise its head trader, who priced these transactions."
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By GlobalDataIn concluding the settlements, StateTrust, Turnes and Cimbal neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA’s investigations were conducted by the Departments of Market Regulation, Member Regulation and Enforcement.
