The Jeffrey Matthews Financial Group, LLC has agreed to pay a fine of $125,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between April 2020 and June 2023, The Jeffrey Matthews Financial Group allegedly violated FINRA Rules 2121 and 2010 and MSRB Rules G-30 and G-17 by charging unfair prices in 12 corporate bond transactions and 86 municipal bond transactions.
Specifically, the firm failed to consider the appropriate pricing information, as identified in FINRA Rule 2121.02(b)(5) and MSRB Rule G-30.06(a)(v), respectively, to determine the prevailing market price. Instead, when selling to customers, the firm in all cases used its own cost to determine the prevailing market price, even when its cost was not contemporaneous. And when purchasing from customers, the firm in all cases used inter-dealer bid or offer quotations to determine the prevailing market price.
For example, on May 19, 2020, the firm sold 250 bonds to a customer and determined the prevailing market price of that bond to be $97.33 based on the firm’s average cost in purchasing the bonds between April 13 and April 16, 2020. The firm applied a 1.714% mark-up and charged the customer $99.00 for each bond. However, the price of the bonds had decreased since the firm purchased them, and the prevailing market price on May 19, 2020, was $94.60.
Had the firm calculated its mark-up using the correct prevailing market price, it would have charged the customer approximately $695 less than it did.
The firm charged unfair prices on 98 bond transactions during the relevant period which, collectively, caused customers to pay $112,932.02 in excess costs.
As a result, The Jeffrey Matthews Financial Group violated FINRA Rules 2121 and 2010 and MSRB Rules G-30 and G-17.
The firm also failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with fair pricing rules. Instead, when selling to customers, the firm in all cases used its own costs to determine the prevailing market price, even when its costs were not contemporaneous. And when purchasing from retail customers, the firm in all cases used bids received as the prevailing market price to determine the prevailing market price.
In addition, the firm’s supervisory reviews of prices focused only on the size of mark-up and mark-down percentages, and the firm did not have any system to determine the appropriateness of the prevailing market price to which those mark-up and mark-down percentages applied.
Therefore, the firm violated FINRA Rules 3110 and 2010 and MSRB Rule G-27.
On top of the $125,000 fine, the firm has agreed to a censure and restitution of $112,932.02, plus interest.