On September 7, 2021, the Financial Industry Regulatory Authority (“FINRA”) and Santander Investment Securities Inc. (“Santander”) entered into an agreement whereby Santander consented to a censure and $175,000 fine after FINRA alleged that Santander published and distributed research reports to institutional investors that omitted required disclosures or included inaccurate disclosures.
Iorio Altamirano LLP is investigating claims on behalf of institutional customers of Santander Investment Securities Inc.
Institutional clients of Santander Investment Securities Inc. that have suffered investment losses should contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of their legal rights.
Santander Investment Securities Inc. (CRD No. 37216)
Santander Investment Securities Inc. is an SEC-registered broker-dealer and has been a FINRA member since 1994. Santander is an institutional broker-dealer whose activities encompass debt and equity capital markets, equity and fixed income sales, and trading with a specialty in Latin America and Europe. The firm currently employs 165 registered persons in its one branch in New York, New York. SIS is indirectly owned by Banco Santander, S.A., a Spanish company whose multinational subsidiaries and affiliates conduct business as “Grupo Santander.
Santander Investment Securities Inc.is licensed in the following states: Alabama, California, Colorado, Michigan, New York, Pennsylvania, Puerto Rico, Tennessee, and Texas.
FINRA Letter of Acceptance, Waiver, and Consent No. 2019063972801
FINRA and Santander entered into FINRA Letter of Acceptance, Waiver, and Consent No. 2019063972801 (the “AWC”) on September 7, 2021, after FINRA alleged that between January 2016 and August 2019, all equity and debt research reports published by Santander omitted required disclosures or included inaccurate disclosures. Particularly, Santander published 411 equity research reports with a total of 656 disclosure omissions or inaccuracies in violation of FINRA Rules 2241(c) and 2010. Similarly, between July 16, 2016, and August 2019, Santander published 60 debt research reports with a total of 333 disclosure omissions in violation of FINRA Rules 2242(c) and 2010. Santander’s omissions were the result of the firm’s failure to establish and maintain a supervisory system reasonably designed to achieve compliance with the disclosure requirements of FINRA Rules 2241(c) and 2242(c), as well as its failure to enforce its relevant written supervisory procedures. As a result, SIS also violated FINRA Rules 3110(a)-(b) and 2010.
Inaccurate and Incomplete Equity and Debt Research Reports
FINRA Rules 2241(c) and 2242(c) set forth content and disclosure requirements for, respectively, equity and debt research reports published or distributed by member firms.
According to the AWC, all 411 equity research reports Santander published and distributed to the firm’s institutional customers from January 2016 to August 2019 omitted required disclosures or included inaccurate disclosures required by FINRA Rule 2241(c). In total, there were at least 656 disclosure omissions or inaccuracies. Specifically:
- In all 411 equity research reports, Santander provided inaccurate disclosures under FINRA Rule 22421(c)(2)(B), which requires firms to disclose in each equity report the percentage of subject companies within each rating category for which it provided investment banking services within the previous twelve months.
- In at least 97 instances across 77 equity research reports, Santander failed to disclose that Santander or any of its affiliates expected to receive or intended to seek compensation for investment banking services from a subject company in the subsequent three months, as required by FINRA Rule 2241(c)(4)(C)(iii).
- In 71 instances across 61 equity research reports, Santander failed to disclose that Santander or any of its affiliates managed or co-managed a public offering of securities for a subject company in the past twelve months, as required by FINRA Rule 2241(c)(4)(C)(i).
- In 37 instances across 33 equity research reports, Santander failed to disclose that Santander or any of its affiliates received compensation for investment banking services from a subject company in the past twelve months, as required by FINRA Rule 2241(c)(4)(C)(ii).
- In 34 instances across 33 equity research reports, Santander failed to disclose that a subject company was a Santander client in the twelve-month period preceding the report and the types of services provided by SIS, as required by FINRA Rule 2241(c)(4)(E).
- In six instances across six equity research reports, Santander failed to disclose that Santander or its affiliates had received compensation for products or services other than investment banking services from a subject company in the previous twelve months, as required by FINRA Rule 2241(c)(4)(D).
Accordingly, Santander violated FINRA Rules 2241(c)(2) and (4), as well as FINRA Rule 2010, which requires a member firm to observe high standards of commercial honor and just and equitable principles of trades in the conduct of its business.
Similarly, according to the AWC, all 60 debt research reports Santander published and distributed to the firm’s institutional customers from July 16, 2016, when FINRA Rule 2242 first came into effect, and August 2019 omitted required disclosures. In total, there were at least 333 disclosure omissions, including:
- In all 60 debt research reports, Santander failed to disclose the definition of each Santander rating (i.e., overweight, market weight, underweight), as required by FINRA Rule 2242(c)(2).
- In all 60 debt research reports, Santander failed to disclose the percentage of all subject companies Santander rated with each rating, as required by FINRA Rule 2242(c)(2)(A).
- In all 60 debt research reports, Santander failed to disclose the percentage of subject companies with each rating that Santander provided investment banking services to within the previous twelve months, as required by FINRA Rule 2242(c)(2)(B).
- In all 60 debt research reports, Santander failed to disclose the historical ratings for a subject company for which Santander had assigned a rating for at least one year, as required by FINRA Rule 2242(c)(3).
- In 31 instances across 19 debt research reports, Santander failed to disclose that Santander or its affiliates received compensation for investment banking services from a subject company in the past twelve months, as required by FINRA Rule 2242(c)(4)(C)(ii).
- In at least 30 instances across 19 debt research reports, Santander failed to disclose that Santander or its affiliates expected to receive or intended to seek compensation for investment banking services from a subject company in the subsequent three months, as required by FINRA Rule 2242(c)(4)(C)(iii).
- In 24 instances across 14 debt research reports, Santander failed to disclose that Santander or any of its affiliates managed or co-managed a public offering of securities for a subject company in the past twelve months, as required by FINRA Rule 2242(c)(4)(C)(i).
- In seven instances in seven debt research reports, Santander failed to disclose that a subject company was a client of Santander in the twelve-month period preceding the report and the types of services provided by Santander, as required by FINRA Rule 2241(c)(4)(E); and
- In one instance in one debt research report, Santander failed to disclose that Santander or its affiliates had received compensation for products or services other than investment banking services from a subject company in the previous twelve months, as required by FINRA Rule 2242(c)(4)(D).
Accordingly, Santander violated FINRA Rules 2242(c)(2)-(4) and 2010.
Supervision Failures
Additionally, according to the AWC, Santander failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with the disclosure requirements of FINRA Rules 2241(c) and 2242(c). For example, the firm had no procedures, testing, or other mechanisms to review and confirm, at the time of publishing or on a periodic basis, that disclosures in its equity and debt research reports were complete and accurate. Consequently, the firm failed to detect for over three-and-a-half years that required disclosures were not appearing in its equity research reports or that newly required disclosures were not added to its debt research reports after FINRA Rule 2242 came into effect in July 2016.
Santander also failed to enforce its written supervisory procedures, which required that all disclosures required by FINRA Rule 2241 and, after it became effective, FINRA Rule 2242 be made in each applicable research report and also specifically required that certain information be submitted to the firm’s research department to ensure compliance with certain of those disclosure requirements. After identifying the issue, Santander reported it pursuant to FINRA Rule 4530. Santander furthermore immediately ceased the production of all debt research and suspended the issuance of equity research until it could remediate these issues in future reports.
As a result, Santander violated FINRA Rules 3110(a)-(b) and 2010.
How to Recover Losses or Obtain a Free Consultation
Iorio Altamirano LLP is investigating claims on behalf of institutional customers of Santander Investment Securities Inc., including whether Santander breached fiduciary duties owed to its clients by publishing and distributing inaccurate and incomplete debt and equity research reports.
Institutional clients of Santander Investment Securities Inc. that were misled by Santander’s inaccurate and incomplete debt and equity research reports should contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of their legal rights.
Iorio Altamirano LLP is a securities litigation law firm based in New York, NY. We have experience representing institutional investors in pursuing claims to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.
Securities litigation attorney August Iorio can be reached at august@ia-law.com. Securities litigation attorney Jorge Altamirano can be reached at jorge@ia-law.com. Alternatively, an attorney may be reached by calling toll-free at (855) 430-4010.