The Financial Industry Regulatory Authority has censured and fined investment banking firm Drexel Hamilton, along with fining four of its registered representatives, a total of more than $1.2 million for violating municipal securities rules.
According to FINRA, from January 2016 through August 2018, Drexel Hamilton participated in primary offerings of municipal bonds and submitted at least 572 orders on behalf of other broker-dealers during retail order periods without a basis for designating the orders as retail. The firm also used ZIP codes that were not associated with retail customers, making it appear that the orders qualified for submission during those periods. Additionally, Drexel Hamilton split at least 44 orders that exceeded the issuer’s maximum order limit into smaller individual orders to evade the restriction.
FINRA said that these actions violated Municipal Securities Rulemaking Board, or MSRB, Rule G-11 which “provides that every municipal dealer that submits an order during a retail order period must disclose in writing to the syndicate senior manager information relating to the eligibility criteria for orders designated as retail, including any identifying information required by the issuer,” along with Rule G-17 which provides that municipal securities dealers deal “fairly” and “not engage in any deceptive, dishonest, or unfair practice.”
Without admitting or denying the claims, Drexel agreed to a censure and a fine of $300,000, plus disgorgement of $837,353.
In addition to the financial sanctions, Drexel Hamilton was ordered to revise its written supervisory procedures to ensure compliance with retail order period rules.
Several individuals associated with the firm were also sanctioned for participating in the scheme including Michael Ivcic, who worked as the municipal securities syndicate representative, and was fined $30,000; David Steigerwalk, a firm representative, who was fined $30,000; Frederick Phelan, a firm registered representative, who was fined $20,000; and Thomas Mead, the head of the firm’s municipal department, who was fined $15,000.
Drexel Hamilton is a New York-based investment banking firm with three branch offices and approximately 40 registered representatives. The firm engages in securities underwriting and securities trading.
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