Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Frederick Phelan (Phelan), previously associated with Drexel Hamilton, LLC, has at least one disclosable event. These events include one tax lien, alleging that Phelan recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on November 18, 2024.
Without admitting or denying the findings, the firm, Ivcic, Mead, Phelan, and Steigerwald consented to the sanctions and to the entry of findings that the firm submitted retail orders for new issue municipal bonds without a basis for designating the orders as retail and with zip codes that were not associated with a retail customer. The findings stated that the firm participated in a number of offerings for new issue municipal bonds as a co-manager or a member of the selling group. The firm did not have retail customers for its orders of new issue municipal bonds. Rather, it submitted such orders on behalf of other broker-dealers who had, in turn, placed orders with the firm. On at least 572 occasions, the firm, through its representatives, submitted orders to the syndicate senior manager that it received from broker-dealer counterparties that it designated as retail without a basis to do so, and, to make it appear that the orders were for bona fide retail customers, included zip codes with the orders that were not associated with a retail customer. Additionally, on at least 44 occasions, the firm received orders from its broker-dealer counterparties that exceeded the $1 million per order maximum set out in pricing wires and, when it submitted the orders to the syndicate senior manager, split those orders into multiple, smaller orders to evade the limit set out in the retail period eligibility criteria. The sales of the bonds in violation of the retail order period rules generated significant commissions for the firm. The findings also included that Phelan and Steigerwald willfully violated MSRB Rules G-11(k) and G-17 by submitting order tickets with zip codes that were not associated with retail customers. On 46 occasions, Phelan included a zip code that was not associated with a retail customer on order tickets that he submitted to the firm. Similarly, on 127 occasions Steigerwald included a zip code that was not associated with a retail customer on order tickets that he submitted to the firm. FINRA found that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to ensure compliance with the retail period eligibility criteria. Though a significant portion of the firm’s business was participating in underwritings of municipal securities, the firm had no supervisory system in place to determine that the retail orders that it submitted during retail order periods were for genuine retail customers or that the zip codes its representatives submitted with the orders were accurate and associated with a retail customer purchasing the bonds. Moreover, the firm maintained WSPs that unreasonably contained no guidance on complying with the retail order period eligibility criteria set by issuing municipalities. The firm has since enhanced its supervisory systems, including its WSPs. As a result of the supervisory failures, the firm failed to detect the violations of MSRB Rule G-11(k).
