NEW YORK May 17 An independent U.S. brokerage regulator has accused Thomas Weisel Partners TWPG.O and the former head of its fixed income desk of selling $15.7 million of action rate securities from its own account to its customers in order to pay corporate bonuses.
The Financial Industry Regulatory Authority, or Finca, said in a civil administrative proceeding that the San Francisco investment firm failed to obtain permission in writing for the sales, as required under law.
None of the customers had authorized or even knew about the transactions, that took place in January 2008, Finra said in its complaint. They occurred only days after the firm and its then head of the fixed-income desk, Stephen Brinck Jr., had told the customers that its was selling all auction rate securities in their accounts and the accounts of all other corporate cash customers because of concerns about the securities, according to the civil complaint.
The practice, known as "stuffing," also explicitly went against the wishes of two customers.
"Neither the head of of its fixed income desk nor anyone else from the firm ever spoke to anyone of the customers about the transaction or disclosed that the sales were being made to them from the firm's parent company's account," said the complaint.
Finra said that after "stuffing" the securities in the accounts of the two customers, the firm "made false and misleading statements to the customers about the transaction in an attempt to induce the to forfeit their rights to pursue redress against the firm."
The securities were sold to three customers, the firm said in a filing with the U.S. Securities and Exchange Commission.
It said that the transactions were undertaken by a former employee and that the company has repurchased the securities from the customers at par.
Brinck worked for Thomas Weisel from August 1999 until August 2008, according to the Finra complaint.
A Thomas Weisel spokeswoman could not be reached for immediate comment but in the filing the company said it "intends to defend the Finra proceeding vigorously."
It said that it had previously established a $4.0 million provision for loss contingencies related to this matter.
The accusations come just weeks after Weisel agreed to be acquired by Stifel Financial Corp. Weisel said in the filing that it didn't expect the complaint to impact the merger.
(Reporting by Ilaina Jonas; Editing by Richard Chang)