Initiated By
FINRA
Allegations
Falla was named a respondent in a FINRA complaint alleging that as the Chief Executive Officer and head trader of a member firm, he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010 by charging the firm's customers undisclosed markups and markdowns in fixed income transactions. Prior to the transactions, the firm had agreed with an investment advisor acting for the firm's Florida customers, that the markups and markdowns on the transactions would be no more than 15 basis points. Falla did not honor that agreement; instead, he entered into a series of secret, pre-arranged transactions with another broker-dealer to create the false appearance that Falla and the firm were honoring the 15 basis points agreement. In effecting the customer transactions, Falla: (a) made misleading representations concerning, and failed to disclose to the investment advisor or the customers, the true acquisition costs and sale proceeds of the bonds he had purchased from and/or sold to the customers; (b) failed to disclose his pre-arranged trades with the broker-dealer; and (c) failed to disclose that he had charged markups/markdowns that exceeded 15 basis points on each transaction. Consequently, Falla misled the investment advisor and the customers into believing that the firm had charged only 15 basis points for each of the customer transactions, as was contemplated and agreed to by the investment advisor and the firm, when in fact the true cost of each transaction to the customers, and profits made by the firm, were much higher. As a result of Falla's misconduct, the firm charged additional markups and markdowns totaling $99,543.21, which was not disclosed to the investment advisor or the customers. The complaint alleges that in the customer transactions, Falla failed provide a price to the customer that was as favorable as possible under prevailing market conditions. The complaint also alleges all of the pre-arranged trades with the broker-dealer in each of the subject bond transactions between Falla's firm and the investment advisor resulted in the publication and circulation of communications and reports of non bona fide purchases and sales of the subject bonds.
Resolution
Decision & Order of Offer of Settlement
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$60,000.00
Sanctions
Suspension
Registration Capacities Affected
Any capacity
Duration
18 months
Start Date
12/19/2016
End Date
6/18/2018
Regulator Statement
Without admitting or denying the allegations, Falla consented to the sanctions and to the entry of findings that he charged his customers undisclosed markups and markdowns in certain separate fixed income transactions. The findings stated that prior to the transactions, Falla's member firm had agreed with an investment advisor acting for firm customers that the markups and markdowns on the transactions would be no more than 15 basis points. Falla did not honor that agreement. Instead, Falla entered into a series of undisclosed, pre-arranged transactions with another broker-dealer to create the appearance that Falla and his firm were honoring the 15 basis points agreement. Falla did not provide a price to the customers that was favorable as possible under prevailing market conditions. In effecting the customer transactions, Falla failed to disclose to the investment advisor or the customers, the true acquisition costs and sales proceeds of the bonds he had purchased from and/or sold to the customers, failed to disclose to the customers his pre-arranged trades with the other broker-dealer, and failed to disclose that he had charged markups/markdowns that exceeded 15 basis points on each transaction. Consequently, Falla caused the investment advisor and the customers to believe that his firm had charged only 15 basis points for each of the customer transactions, as was contemplated and agreed to by the investment advisor and Falla's firm, when in fact the true costs of each transaction to the customers, and profits made by Falla's firm, were higher. All of the pre-arranged trades resulted in the publication and circulation of communications and reports of non-bona fide purchases and sales of the subject bonds. As a result of Falla's misconduct, his firm charged additional markups and markdowns totaling $99,543.21, which was not disclosed to the investment advisor or the customers. Based on the foregoing misconduct, Falla violated Section 17(a)(2) of the Securities Act of 1933.