The Financial Industry Regulatory Authority said it ordered Zions Bancorp.'s brokerage unit to pay $225,000 for failing to disclose potential conflicts of interest in online certificates of deposit auctions for nearly two years.
The regulator said Wednesday that Zions Direct Inc. failed to make public in its online CD auctions from February 2007 through November 2008 that the affiliate Liquid Asset Management was involved in the auctions to retail investors. Finra said bidders would have had potentially higher yields in some auctions if LAM didn't participate.
"The CD auction participants were never told that they were effectively competing against Zions Direct's affiliate in the firm's own auctions," said James S. Shorris, Finra's acting enforcement chief. "As a result, bidders may receive lower yields."
The brokerage "generally" disclosed LAM's participation in such auctions starting in November 2008, but still wasn't mentioning the relationship between the issuing banks affiliated with Zions and its customers who participated in the auctions, Finra said. Additionally, Finra found Zions Direct sent "misleading" and "exaggerated" advertisements to its current and prospective customers, promising unrealistic CD yields.
Zions Direct settled the case without admitting or denying the charges, but it consented to the entry of Finra's findings.