Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, May 12, 2009

FINRA Suspends Principal of RD Capital Group for Excessive Markups on STRIPs

FINRA announced that it ordered Ramon Luis Dominguez, President of RD Capital Group in Puerto Rico, to pay restitution of $950,000 plus interest to three customers victimized when Dominguez and the firm charged undisclosed, excessive and fraudulent markups on the sale of United States Treasury STRIPS.  Dominguez and the firm were fined $50,000. Dominguez was suspended as a principal for 30 days and in all capacities for five business days. Dominguez and the firm agreed to the sanctions to resolve charges first brought against them in a FINRA complaint in November 2007.

FINRA found that between August 2005 and October 2005, RD Capital and Dominguez sold over $34 million in U.S. Treasury STRIPS to the three customers, charging total markups of $1,289,727. STRIPS, an acronym for Separate Trading of Registered Interest and Principal Securities, are zero-coupon U.S. Treasury fixed-income securities generally sold at a significant discount to face value. FINRA found that Dominguez failed to disclose to his customers the amounts of the markups, which ranged from 3.5 percent to 6.2 percent. These markups were excessive and fraudulent because the amount charged was greater than the amount warranted by market conditions, the cost of executing the transactions and the value of the services rendered to the customers.

In concluding these settlements, RD Capital and Dominguez neither admitted nor denied the allegations in the complaint.

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