Dougherty Fined $50,000 by FINRA

Dougherty & Co. was fined by the Financial Industry Regulatory Authority (FINRA) $50,000 for serving as an underwriter for 54 issuers with which it had ongoing “blanket” financial advisory agreements. The fine is the largest of its kind in recent years. It was one of the largest violations of Municipal Securities Rulemaking Board Rule on the activities of financial advisors. The rule (Rule G-23) is designed to avoid the conflict of interest that would exist if a muni securities professional were to act as both a municipal advisor and underwriter on the same issue. The underwriter’s primary role is to purchase or arrange for the placement of securities in an arms-length transaction with an issuer and underwriter. A dealer that has a municipal advisory relationship with an issuer is prohibited from acquiring any portion of issue from that client either directly or indirectly. FINRA found that the firm was only compensated as an underwriter for the issuances it carried out with the 54 issuers during the review period. The SEC recently brought a similar case against Central States Capital Markets, a Kansas-based municipal advisory firm and three of the firm’s employees. FINRA found that the firm and its employees breached their fiduciary duty to their client after serving as financial advisor for the unidentified issuer in a muni transaction and selecting a broker-dealer where the employees also worked, to underwrite the bonds.