The Financial Industry Regulatory Authority (FINRA) of US has fined Zions Direct $225,000 for failing to disclose potential conflicts of interests in online certificate-of-deposits (CDs) auctions for nearly two years.
FINRA said that Zions Direct, the brokerage unit of Zions Bancorp, failed to make it public in its online CD auctions from February 2007 through November 2008 that affiliate Liquid Asset Management (LAM) was involved in the auctions to retail investors.
According to FINRA, LAM’s participation in the auctions for its customers had the potential to disadvantage other auction participants, including retail customers, who may have received lower CD yields than they would have otherwise.
FINRA executive vice president and acting chief of enforcement James Shorris said firms are obligated to disclose to customers and prospective customers material information about their products and services.
“Here, the CD auction participants were never told that they were effectively competing against Zions Direct’s affiliate in the firm’s own auctions, and that, as a result, bidders may receive lower yields. This was material information, and a potential conflict of interest, that should have been disclosed,” Shorris said.
In concluding this settlement, Zions Direct neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.