Securities Law Prof Blog

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

Wednesday, August 25, 2010

FINRA Fines Zions Direct for Not Disclosing Conflicts in Online CD Auctions

FINRA fined Zions Direct, Inc. $225,000 for failing to disclose the potential conflict of interest created by the participation of its affiliate, Liquid Asset Management (LAM), in online CD auctions conducted by Zions involving certificates of deposit (CDs) issued by Zions-affiliated banks.  Zions Direct, based in Salt Lake City, began auctioning CDs through its website in February 2007. Prior to November 2008, the firm failed to disclose LAM's participation in the auctions to retail investors bidding in the auctions. FINRA found that the closing yields in some auctions may have been higher had LAM not participated.

 Beginning in November 2008, Zions Direct generally disclosed LAM's participation in the auctions, yet still failed to disclose the potential conflict of interest between the issuing banks affiliated with Zions and its customers who participated in the auctions.

FINRA also found that Zions Direct sent its current and prospective customers advertisements related to its CD auctions which contained misleading, unwarranted, and exaggerated statements and claims, and claims for which no reasonable basis had been provided. For example, some of the firm's communications contained the following statements:

 "Where else can you bid with the big boys and win?"
"Crush The National Average For CD Yields."
"Higher yields on CDs."

In concluding this settlement, Zions Direct neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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