A FINRA panel has suspended former broker
The panel, which held a two-day hearing on the case in February after a complaint was filed against Grey in late 2011, also charged him with violating the federal securities fraud laws as well as Municipal Securities Rulemaking Board rules G-17 on fair dealing and G-30 on prices and commissions.
Grey, who is no longer registered, but at the time was a broker at
In discussing the findings and sanctions in its 40-page decision, the hearing board said, “At the hearing, [Grey] not only displayed no remorse, but in some instances he denied the plain truth,” claiming that he gave customers “wholesale” prices and had no conflict of interests.
“Grey’s whole pattern of doing business was to treat his customers as a resource for his own profit and liquidity in connection with his personal bond trading,” the hearing board said. “He purposefully put his self-interest ahead of his duty to his customers to look out for their interest, and he designed a method of trading for his own benefit that concealed from his customers that he was charging them far more than industry standard markups. He engaged in the misconduct to enrich himself.”
The hearing panel’s charges stem around six muni bonds Grey sold in 10 transactions to retail customers, with the most serious charges pertaining to six of those trades. In each case, Grey acquired bonds for his firm or his own account. In either case, the bonds ended up in his personal account. The one to four days later, Grey moved the bonds to the firm’s account and simultaneously sold them to his retail customers at much higher prices than he had paid.
No interdealer trades occurred during the four days, so there was no indication in a shift of the prevailing market prices of the bonds, the panel said.
Grey attributed about half his income during the 2008-2009 period to his personal trading, the panel said. He engaged in thousands of bond trades during a year, it said. In 2009, Grey leveraged his capital and increased his trading capacity by rolling over money from his individual retirement account to a profit-sharing plan of a company he owned so he could buy on margin. The former broker claimed he used his personal accounts because the firm did not have a proprietary trading account until
Walley tracked the trades, using the MSRB’s EMMA system, which provides some trade data, without identifying firms, to the public and all trade data to regulators. In one case, Grey bought some
Grey claimed he didn’t charge markups, because the prices at which he sold the bonds to retail customers were the same prices he would have charged other dealers. He also denied he had any conflicts of interest using his own personal accounts, saying he gave the customers good prices on the bonds.
The former broker claimed he did not run afoul of the firm’s policy on markups because the policy only applied to government bonds, not muni bonds, a contention the hearing panel rejected.
David Paulakaitis, who held increasing senior positions at
Paulakaitis testified Grey’s alleged conflict of interest was no different than that of a proprietary account at a broker-dealer, but the panel disagreed with him. Bagley testified Grey’s customers paid a fair price for the bonds, but the hearing panel found, in part, that his methodology was flawed.
The hearing panel said Grey’s suspension should start
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