The securities industry regulator fined a Zions Bancorp unit $225,000 for failing to disclose a potential conflict of interest in online auctions for certificates of deposit.
Zions Bancorp spokesman James Abbott said in a phone interview that the company has now corrected its disclosures in compliance with FINRA’s standards.
The regulator reports that Zions Direct started offering the sale of CDs through its website in February 2007, giving retail investors the opportunity to place online bids to purchase CDs issued by banks. However, FINRA said in a statement that the firm failed to disclose that an affiliate, Liquid Asset Management, also participated in the auctioning process before November 2008. FINRA investigations revealed that the closing CD yields that the successful bidders received in some of the auctions might have been higher had Liquid Asset Management not participated.
Liquid Asset's participation in these transactions may have been beneficial to other CD-issuing banks that are affiliated with Zions. As a result, the Zion affiliates might have paid higher yields on the CDs purchased through the auctions, if Liquid Asset had declined to partake in the sales, the regulator said.
"Here, 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 Shorris, FINRA's acting enforcement chief, in a press release. “This was material information, and a potential conflict of interest, that should have been disclosed.”
FINRA also found that Zions Direct sent customers advertisements about its auctions that contained misleading statements and exaggerated statements involving the yields that bidders could obtain on CDs.
According to FINRA, Zions Direct neither admitted nor denied FINRA's allegations, but consented to the findings, FINRA said.