Compliance November 18, 2009

FINRA Fines MetLife $1.2M for Failing to Supervise Brokers’ E-mail

The Financial Industry Regulatory Authority (FINRA) said that supervisory failures at MetLife Securities allowed two brokers to engage in undisclosed outside business activities that cost clients millions of dollars.

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FINRA has fined the firm and three of its New York-based affiliates—New England Securities Corp., Walnut Street Securities, Inc., and Tower Square Securities, Inc.—a total of $1.2 million for failing to establish an adequate supervisory system for the review of brokers’ e-mail with the public. The fine also resolves charges of failing to establish adequate supervisory procedures relating to broker participation in outside business activities and private securities transactions.

According to FINRA, from 1999 until December 2006, MetLife required that all securities-related e-mails from brokers be reviewed by a supervisor; however, the firm did not have a system in place to allow supervisors to monitor the e-mail, relying on brokers to forward the e-mails.

Brokers were able to dodge the rules, and in that period, two MetLife brokers did. The brokers engaged in undisclosed outside business activities and private securities transactions, reflected in more than 100 e-mails without detection by the firm. One of the brokers, Mark Salyer, stole nearly $6 million from his customers in connection with his participation in numerous private securities transactions to raise capital for real estate development companies, FINRA said.

Salyer has been barred from the securities industry. FINRA’s investigation of the other broker continues.

“Although FINRA’s rules afford firms the flexibility to tailor procedures that are appropriate for their particular business models, all firms must have the ability to flag emails that may evidence misconduct,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement. “Relying on brokers to provide copies of their own e-mails to supervisors for review is hardly an effective means to detect such misconduct.”

The Markets November 18, 2009

Fund Managers’ Risk Appetite on the Rise

The latest Bank of America (BofA) Merrill Lynch Fund Manager Survey found that risk appetite among investors is tip-toeing upward.

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The proportion of respondents taking lower than normal risk has shrunk to 1%, down from 16% in September, according to the survey.

The higher risk appetite is evident in emerging markets. “We are seeing a vivid and extreme bent towards high-beta markets, such as Russia, and movement away from lower beta markets, such as Chile and Malaysia,” said Michael Hartt, chief global equity strategist at BofA Merrill Lynch Global Research.

Interest Rates Here to Stay

The majority of surveyed investors expect the U.S. Federal Reserve to hold off from raising interest rates until the second half of 2010. More than three-quarters of the respondents predict the Fed will raise rates in the second half of 2010 or beyond, according to the survey.

Almost half (47%) of respondents expect global core inflation to be higher in 12 months, up from 39% in October. Demand is up for assets protecting against inflation, such as gold, commodities, and emerging market equities. In fact, one-fourth of the panel is overweight commodities, up from 11% in October. More than half (53%) of the panel is overweight emerging market equities, up from a  46% in October.

“Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar,” Hartt said.

While 22% of surveyed global fund managers view Europe as the most undervalued global market, investors within Europe are wary of their region’s equities, the survey found. European survey respondents made substantial moves out of cyclical stocks and into defensive sectors over the past month. For instance, more than a quarter of Europeans surveyed increased their positions in Healthcare/Pharma.

A total of 218 fund managers, managing a total of $534 billion, participated in the global survey from November 6 to 12. A total of 177 managers, managing $361 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS.

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