Oriental Financial Services Corp. Fined and Censured by FINRA Over Puerto Rico Bond Sales

Oriental Financial Services Corp. (CRD #29753, San Juan, Puerto Rico)

was censured, fined $245,000 and must submit to FINRA a proposed methodology of how it will identify, review and remediate unsuitably concentrated Puerto Rico (PR) securities purchases. At a minimum, the methodology must include Oriental Financial Services Corp’s review of customers’ concentrated PR securities purchases effected between December 14, 2012, and June 30, 2013, and a provision explaining how restitution, if any, will be calculated. Allegedly, Oriental Financial Services Corp reported to FINRA on Form 4530 that it had not disclosed on customer confirmations the markups and markdowns for riskless principal transactions in PR closed-end funds (PR CEFs).

FINRA's findings stated that between 2000 and August 5, 2013, Oriental Financial Services Corp effected approximately 2,800 riskless principal transactions involving PR closed-end funds (CEFs) in approximately 1,000 accounts and failed to disclose approximately $2.9 million in markups and markdowns on customer trade confirmations.

FINRA's findings also stated that Oriental Financial Services Corp failed to establish and maintain a supervisory system. Oriental Financial Services Corp’s staff did not appropriately classify PR CEFs as equity securities and its supervisory staff were therefore unaware that the disclosure requirement for riskless principal transactions in equity securities applied to PR CEFs throughout the 13-year time period. Oriental Financial Services Corp failed to have a system in place to ensure that it disclosed markups and markdowns on riskless principal transactions in PR CEFs because it failed to appropriately classify those products as equities that required disclosures.

According to FINRA's findings Oriental Financial Services Corp failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR CEFs. Oriental Financial Services Corp’s registered representatives continued soliciting concentrated purchases of PR securities even after a municipal bond rating downgrade of the general obligation rating of the Commonwealth of Puerto Rico. While the Oriental Financial Services Corp’s WSPs required that its registered representatives have reasonable grounds to believe that any purchase or sale recommendation was suitable for a particular customer, the WSPs did not outline the steps that Oriental Financial Services Corp should have taken to review the transactions for concentration. Despite having implemented guidelines, Oriental Financial Services Corp did not require that supervisors review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews. Oriental Financial Services Corp engaged a consultant to perform a self-review through which it identified six potentially unsuitable purchases of PR securities.
(FINRA Case #2013035308801)

This ends the summation of information from FINRA's "Disciplinary and Other FINRA Actions February 2015."

Soreide Law Group is currently representing investors nationally and internationally in Puerto Rico bond loss cases. If you purchased Puerto Rican bonds through your broker-dealer, call (888) 760-6552 for a free consultation on how to recover your investment losses.