All four firms were ordered to make restitution payments, for the markup/markdown violations: nearly $344,000 for Goldman Sachs, $422,000 for Deutsche Bank, $182,000 for Miller Tabak Roberts and $486,000 for Citigroup Global Markets.
NASD also charged three of the firms - Goldman Sachs, Deutche Bank and Citigroup Global Markets - with trade-reporting violations. Two of the firms - Deutsche Bank and Miller Tabak Roberts - were charged with failure to register one or more supervisors on the firms' high yield desks.
"NASD rules require that firms sell all securities, including corporate high yield debt, at fair prices," said NASD Vice Chairman Mary L. Schapiro. "NASD markup policy has been clear that markups and markdowns generally should not exceed 5 percent and, for most debt transactions, that figure should be lower. Numerous SEC and court rulings have reiterated these principles throughout the years. In the cases we announce today, markups and markdowns were clearly outside these well-established guidelines."
NASD found that in 2000 and 2001, Goldman Sachs charged markdowns ranging from 9.4 percent to 30.4 percent on five pairs of trades. From mid-2000 through early 2002, Deutsche Bank charged markdowns ranging from 9.6 percent to 16.6 percent on seven pairs of trades. In 2001 and early 2002, Miller Tabak Roberts charged markdowns ranging from 9.4 percent to 18 percent on three pairs of trades. Finally, from 2000 to early 2002, Citigroup charged markups and markdowns ranging from 13.1 percent to 32.2 percent on three pairs of trades. The firms bore little or no risk in these transactions.
In addition, all four firms failed to create or maintain records that clearly and accurately reflected the time customer orders were entered or the time those orders were executed. Such basic record keeping is required by SEC and NASD rules. Furthermore, the systems used by Goldman Sachs and Deutche Bank to report the high yield bond transactions did not allow the firms to report accurate execution times when the trades were input late. Reliance on systems that prevent compliance with applicable rules is an unacceptable practice.
NASD also found that supervision at all four firms was deficient. For nearly two years at Goldman Sachs and for at least six months at Deutsche Bank, there was confusion as to who was responsible for reviewing certain high yield bond trades. As a result, it was not clear that any supervisory review of those trades occurred. Even when high yield bond trades were reviewed, the supervisory reviews at Goldman Sachs and Deutche Bank failed to conform to the policies or standards set forth in the firms' own written supervisory procedures. At Miller Tabak Roberts, the review of these trades was based on an unwritten internal guideline that was inconsistent with the NASD Markup Policy. At Citigroup, the supervisory procedures did not provide for a review to determine compliance with NASD's markup policy. The firms did not identify these fundamental supervisory failures until NASD initiated its investigations.
In concluding these settlements, the firms neither admitted nor denied the charges.
Investors can obtain more information about, and the disciplinary record of any NASD-registered broker or brokerage firm by contacting NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to http://www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business — from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web Site at www.nasd.com.
