Financial Integrity

FINRA Panel Finds Firm Guilty of Unfair Pricing Practice

A US Financial Industry Regulatory Authority (FINRA) panel has ordered David Lerner Associates (DLA) to pay a US$2.3 million fine and over US$1.4 million in restitution, plus interest, after concluding that the firm charged excessive mark-ups on municipal bond and collateralised mortgage obligation (CMO) transactions for two years. According to the FINRA panel, DLA intentionally charged retail customers excessive mark-ups in more than 1,500 municipal bond transactions and in more than 1,700 CMO transactions, which led to DLA’s customers paying unreasonably high prices and receiving lower returns. The panel found that DLA charged mark-ups on the municipal bonds ranging from 3.01% to 5.78% and charged mark-ups on the CMOs ranging from 4.02% to 12.39%, and that the price was marked up regardless of the amount of money involved in the transaction.

The panel further noted that DLA’s supervisory team failed to:

  • “establish and maintain adequate procedures to monitor the fairness of pricing for municipal bonds and CMOs”;
  • “have adequate procedures in place to ensure that it recorded the time that the municipal bond orders were received from customers”; and
  • “record the order receipt time of municipal order tickets”.

The panel also factored in DLA’s relevant disciplinary history, namely that despite having received a Letter of Caution from FINRA concerning DLA’s mark-up practices and a Wells Notices concerning the matter in July 2009, the firm continued to engage in unfair pricing practice.
FINRA’s media release (4 April 2012)
(Source: FINRA)

President Obama Signs Insider Trading Act Into Law

President Obama has signed into law the Stop Trading on Congressional Knowledge (STOCK) Act early this week, which prohibits members of Congress, the president, and other federal workers from trading on non-public information they learn on the job. The law also provides the public with more visibility into government officials’ financial dealings. Under the law, all transactions over $1,000 must be posted online 45 days after the transaction takes place or 30 days after the individual was notified of the transaction. Some members of Congress feel the law does not go far enough, but an earlier proposal that would have required public reports from those who gather information from Congress and sell it to investors was dropped. The Office of Congressional Ethics has investigated the trading history of Rep. Spencer Bachus but the Congressman has denied any wrongdoing.

Yahoo News: Obama signs insider trading ban by lawmakers (4 April 2012)
(Source: Associated Press)

Credit Unions Censured for Breaching Due Diligence and Disregarding Members’ Interests
Europe, Middle East and Africa

The UK Financial Services Authority (FSA) has announced that it has publicly censured Pollok Credit Union (PCU) and Shettleston and Tollcross Credit Union (STCU). According to the FSA, PCU issued a large loan, equivalent to 88% of its capital, to a trust, which was a non-member of the credit union, and in doing so threatened its own solvency. STCU made out loans to seven of its directors on terms more favourable than those available to its other members. It removed the preferential rate upon knowing that it was not allowed, but failed to recover lost earnings and, therefore, paid a reduced dividend to its members as a result. The credit unions were found to have “breached the requirement to conduct business with due skill care and diligence, while [STCU] was found to have breached the requirement for a firm to pay due regard to the interests of its members”.
FSA’s media release (26 March 2012)
(Source: FSA)

Radiation Oncology Practice and Others Settle Medicare Fraud Billing Charges

The US Department of Justice (DoJ) has announced that Radiotherapy Clinics and its associated practices RCOG Cancer Centres, Physician Oncology Services Management Company, Dr Frank Critz and Physician Oncology Services (collectively RCOG) have agreed to pay US$3.8 million to settle allegations that they charged Medicare “for medical treatment that they provided to prostate cancer patients in excess of those permitted by Medicare rules and for services that were not medically necessary”. It was also alleged that the clinic overbilled Medicare for physics consultations and for pre-plans ordered by Dr Critz that were not medically necessary and/or never reviewed by him.
DoJ’s media release (3 April 2012)
(Source: DoJ)

Medicare False Claims Cases Settle for US$137.5 Million

The US Department of Justice (DoJ) has announced that WellCare Health Plans (WellCare) has agreed to pay US$137.5 million to settle four cases alleging false Medicare claims and various Medicaid programs, including that the company falsified the amount it claimed to be spending on medical care in order to avoid returning the money to Medicaid and other programs. It was also alleged that WellCare misrepresented the medical conditions of patients and the treatments they received. Further, the lawsuits charged the company with “cherrypicking of healthy patients in order to avoid future costs[,] manipulat[ing] grades of service or other performance metrics regarding its call centre … and operat[ing] a sham special investigations unit”.

DoJ’s media release (3 April 2012)
(Source: DoJ)