SMH fined for ‘soft-dollar’ errors

Sanders Morris Harris Capital Inc. made $325,000 in "soft-dollar" payments to a hedge fund manager, according to FINRA.

FINRA has fined Sanders Morris Harris Capital Inc. $450,000 for failing to adopt adequate supervisory procedures to address its prime brokerage and soft-dollar services to hedge funds.
As a result of those practices, the Houston-based financial services holding company made $325,000 in “soft-dollar” payments to a hedge fund manager, according to FINRA.
“Soft-dollar” payments are made for services from commissions instead of as direct fees.
The fine marks the first time that the self-regulatory organization has fined a company for such activities.
The Financial Industry Regulatory Authority said that SMH sent two improper payments to a hedge fund manager who had submitted an invoice requesting a check for $75,000 to an individual for “consulting services” and a another check for just under $250,000 to the manager for “research expense reimbursement.”
The manager did not provide SMH with any documentation from the consultant or from any research provider, FINRA said.
FINRA also imposed $100,000 fines and 20-day suspensions on Michael S. Rosen and Jack D. Seibald, the two brokers who helped manage SMH’s prime brokerage services business, while at the same time serving as the managers of a hedge fund that executed trades at SMH.
In settling the matter, the company, Mr. Rosen, Mr. Seibald and Mr. Gallo neither admitted nor denied the charges.