By Chad Kohler
The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that oversees brokerage firms, announced this month that Huntington Investment Company, the Columbus, Ohio-based brokerage firm and wholly-owned subsidiary of Huntington Bancshares, Inc., was fined $25,000 and censured for violating industry rules designed to protect buyers of municipal securities, including failing to disclose substantial political contributions made by several Huntington executives.
According to the Letter of Acceptance, Waiver and Consent (AWC) agreed to by Huntington, from March 2011 through January 2012, Huntington acted as an underwriter for certain municipal bond anticipation notes that were exempt from registration under the federal securities laws. The Municipal Securities Rulemaking Board (MSRB), which writes investor protection rules for municipal securities offerings, has established special rules under MSRB Rule G-32 that underwriters must follow when offering municipal securities (like the bond anticipation notes at issue underwritten by Huntington) that are exempt from federal registration requirements.
FINRA's investigation found that Huntington violated MSRB Rule G-32 in numerous ways.
First, Huntington failed to notify the MSRB through the Electronic Municipal Market Access System (EMMA) that the bond anticipation notes it was underwriting were being offered without preliminary official statements or official statements.
Second, Huntington engaged in advance refunding offerings (which involve paying off previously issued notes with newly issued notes that pay interest at a lower rate), but failed to file required documents with the MSRB via EMMA in each of the three advance refunding offerings in which Huntington acted as the sole or senior underwriter.
Third, even after Huntington had been notified that it was not properly filing required documents relating to advance refunding offerings, Huntington continued violating MSRB rules by not filing three advance refunding documents with the MSRB and filing another five advance refunding offerings late by an average of 14 days.
Fourth, Huntington's policies and procedures were deficient because, although they described in part Huntington's responsibilities with regard to MSRB filings and customer disclosures, they failed to provide an adequate system for ensuring that Huntington's responsibilities were actually being met.
Fifth, and once again even after Huntington had been notified that its policies and procedures were inadequate, Huntington nevertheless failed to enforce its newly revised policies and procedures, resulting in continued violations of MSRB Rule G-32.
Finally, Huntington violated MSRB Rule G-32 by failing to disclose four political contributions made by executives at the brokerage firm. Three of the political contributions totaled between $2,500 and $3,500, and the fourth political contribution was for $1,000. The names of the executives were not disclosed.
The AWC notes this is not the first time that Huntington has been sanctioned for violating MSRB rules. In October 2008, Huntington accepted a $6,000 fine and censure for failing to properly report purchases and sales of municipal securities through the MSRB's Real-time Transaction Reporting System ("RTRS").