In June 2013, FINRA fined brokerage firm StateTrust Investments, Inc. and its Chairman, Joseph Luis Turnes a/k/a Jose Luis Turnes, for fraudulent bond transactions. StateTrust is headquartered in Miami and has a branch office in Caracas, Venezuela. FINRA found that StateTrust charged customers unfair prices on 563 different corporate bond transactions between March 2007 and June 2010. The unfair pricing was the result of excessive markups and markdowns on bond purchases and sales, in violation of various FINRA rules and securities laws. FINRA appears to be focusing on this type of bond fraud lately, as it has fined numerous brokerage firms for charging excessive markups and markdowns.
A markup is the difference between the lower price that brokerage firms pay to buy a bond and the higher price at which they sell it to investors. And a markdown is the difference between the lower price brokerage firms pay to investors selling bonds and the higher prices for which the brokerage firms then sell the bonds. Investors typically do not know how much they are being charged for bond trades because brokers and brokerage firms often do not disclose markups and markdowns. The excessive charges can deplete or wipe out a large portion of investors’ returns or gains. Investors with significant bond portfolios may have unknowingly sustained enormous damages as a result of fraudulent bond charges. Recovery of such damages can be pursued through a binding FINRA arbitration proceeding.
