Southwest Securities agreed to pay a $500,000 fine to settle FINRA charges it paid consultants to solicit municipal securities business and violated other MSRB rules.  Payments allegedly were made to former officials of a Texas municipal issuer and others, to have them solicit municipal securities business on its behalf - in contravention of MSRB rules.  

    Detailed FINRA Allegations.   From October 2006 through April 2009, Southwest paid 5 individuals - including 3 former Texas municipal issuer officials - some $200,000 to solicit municipal securities business on its behalf.  The consultants helped Southwest obtain 24 municipal securities underwritings and 2 roles as financial advisor to Texas municipalities.   The consultants also were promised, among other things, to be paid a percentage of Southwest's profits from any municipal securities business they helped to solicit.

In addition to the formal consulting arrangements, Southwest paid more than $26K to 3 other individuals in connection with their roles in obtaining municipal securities business for the firm.  FINRA also alleges that Southwest failed to file 10 MSRB Forms G-36(OS) and G-36(ARD) in a timely manner and for inaccurately reporting more than 300 municipal securities transactions to MSRB.

Southwest apparently had not amended its WSP's for a 2005 amendment to MSRB Rule G-38 that prohibited payments to unaffiliated individuals for the solicitation of municipal securities business.  Southwest also apparently failed to enforce its procedures related to political contributions - i.e., requiring all muni finance professionals to clear their political contributions through Compliance prior to making the contributions.  This pre-approval process was ever implemented.  This caused the firm to engage in prohibited municipal securities business - in violation of MSRB Rule G-37 - that led to SEC disciplinary action against the firm in March 2010. 

    Additional Settlement Terms.   In additional to the fine, an officer of Southwest must confirm to FINRA that Southwest has reviewed its WSP's for compliance with all applicable MSRB rules, and must certify that the firm's systems and procedures are reasonably designed to achieve compliance with the rules.  

For further details, go to:   [FINRA News Release, 3/7/11]