FINRA recently censured and fined Wachovia Capital Markets, LLC $300,000 for violations of FINRA's research analyst conflict of interest disclosure rules which require firms to provide investors with information about actual and potential conflicts of interest that could influence analysts' conclusions about investing in listed companies.
From Jun 2004 to May 2006, Wachovia failed to include in 40 research reports a total of 56 disclosures concerning Wachovia's financial relationships with subject companies. In 20 of those reports, Wachovia failed to disclose that it managed or co-managed a public offering of securities issued by the subject company. In other research reports, Wachovia failed to disclose that it received compensation from the subject company for investment banking services, that it owned an interest in the common stock of the company or that it was making a market in the securities of the company.
Additionally, from Mar 2004 to Jul 2007, in over 15,000 research reports, Wachovia included a disclaimer stating that the firm and its affiliates may own an interest in the securities of the subject company. This disclaimer is inconsistent with FINRA's requirement that firms affirmatively disclose whether they own one percent or more of the common equity stock of the subject company.
Even the rules governing analyst conflict of interest have been implemented for several years, some firms are still using "maybe" disclaimer to replace actual disclosure. This indicates the fact that these firms do not have any internal compliance monitoring of research disclosures.
Unintentional discrepancies may happen even a good control system is in place.
ReplyDeleteHuman error and honest overlook could not be avoided. This happened when an analyst told me that he did not make a disclosure when a report was issued around a year ago.