Late Delivery of Statements

FINRA recently fined Edward D. Jones & Co. US$900,000 for its failure to timely deliver official statements to customers who purchased new-issue municipal securities and related supervisory and recordkeeping failures. With limited exceptions, broker-dealers selling a new-issue municipal securities are required to deliver a copy of the official statement to the customer on or before settlement date. New-issue securities are those sold during the initial distribution of bonds to the public.

FINRA found that Edward Jones' late deliveries occurred when the firm was conducting retail transactions but was not a member of the underwriting syndicate for a new issue. The firm's failures from 2002 through 2006 were systemic. During that time period, Edward Jones engaged in approximately 100,000 new-issue municipal bond transactions in which it was not an underwriter. For a significant number of those transactions, the firm was late in delivering official statements to its customers. The firm's systemic late deliveries had multiple causes, including lack of training for employees, incorrect instructions to employees, limited photocopying capacity and errors by employees of the firm, including trading supervisors.

The late deliveries continued. In September 2008 alone, the firm was late in mailing official statements to customers in over 6,200 transactions, which represented 19% of the firm's municipal bond transactions. Edward Jones's own internal communications repeatedly referenced that it was not timely delivering official statements. Nevertheless, the firm failed to take reasonable and sufficient steps to comply with its delivery obligations. Edward Jones also failed to keep required records, did not have written supervisory procedures addressing the requirements for delivery of official statements until May 2006, and that those procedures contained incorrect guidance.

In Hong Kong, SFC licensed / registered intermediaries are required by the S&F (Contract Notes, Statements of Account and Receipts) Rules to provide official transaction and account statements to their customers within specified time frame. I did also witness the above systemic problems resulting in late delivery of statements, but (touch wood) so far SFC has not imposed a heavy penality for such problems.