* FINRA says Southwest Securities had weak supervision
* Cutler Securities expelled from securities business
* SWS to pay $650,000 fine, second FINRA fine this month
By Joseph A. Giannone
NEW YORK, March 22 Wall Street regulator FINRA
on Tuesday brought its second case this month against Southwest
Securities, fining the Dallas broker-dealer $650,000 for
letting a customer execute a "reckless" short-sale trade.
The Financial Industry Regulatory Authority said poor due
diligence, risk assessment and supervision allowed a
correspondent clearing customer, Cutler Securities, to create
risk for Southwest. FINRA expelled Cutler as a broker-dealer
and barred its chief executive, Glenn Cutler, from the
FINRA said that on Aug. 6, 2009, Cutler's second day
clearing trades through Southwest, Cutler bought 18 million
shares of a stock and sold more than 20 million shares of the
same stock, resulting in a 2.5 million-share short position.
Cutler, a Delray Beach, Florida, firm formed in 1996, was
unable to meet its obligations on the trade. FINRA said this
forced Southwest to close the position and left itself with a
$6.3 million loss.
"Southwest's systemic failures in overseeing its clearing
services led to considerable financial losses for itself, and
illustrates the risks that can be created by correspondent
firms," said Brad Bennett, FINRA's enforcement chief.
Southwest, a unit of SWS Group Inc SWS.N, and Cutler
neither admitted nor denied the charges. Cutler had a history
of failing to comply with short-selling regulations, FINRA
SWS, which has been weakened by large commercial real
estate loan losses, on Monday agreed to swap a 34 percent stake
for $100 million in loans from two investors. The new capital
is expected to help SWS bolster its financial strength.
Earlier this month, FINRA fined SWS $500,000 for paying
former Texas municipal officials and others to solicit
underwriting assignments, a violation of municipal securities
(Reporting by Joseph A. Giannone, editing by Matthew Lewis)