Dallas-based Southwest Securities, Inc. was hit with a $650,000 fine this
week, the second fine imposed on the firm by FINRA in less than 30 days
("Finra socks Southwest Securities again,"InvestmentNews, March 22, 2011).
On March 7, FINRA fined the brokerage firm $500,000 for Municipal Securities
Rulemaking Board (MSRB) violations, which included the use of consultants
who were paid by the firm to solicit municipal services business on its
behalf. (See FINRA'snews release for more information.)
Just over two weeks later, on March 22,
FINRA fined Southwest Securities an additional $650,000 for:
Deficiencies in due diligence, risk assessment and written supervisory
procedures that permitted one of its correspondent firms, Cutler Securities,
to create risk for Southwest through improper short sales.
As reported byInvestmentNews, Southwest Securities suffered a $6.3 million loss due to improper short
sales established by Cutler Securities. On Aug. 6, 2009, Cutler Securities
established a 2.5 million share short position, which it was unable to
cover. According to the FINRA statement, Southwest Securities received
trading alerts about Cutler's activities but did nothing to prevent
the establishment of the position.
In the statement, Brad Bennett, FINRA Executive Vice President and Chief
of Enforcement, said:
Southwest's systemic failures in overseeing its clearing services ...
illustrates the risks that can be created by correspondent firms. Southwest's
failure to effectively monitor Cutler's reckless behavior jeopardized
its ability to meet its obligations to its other correspondent firms and