Abuses in the Bond World Relate to Lack of Transparency and Conflicts of Interests

Last month’s FINRA Disciplinary Actions (April 2017) triggered this bond focused post. In April of 2017, FINRA took disciplinary action against J.P. Morgan Securities and Morgan Stanley Smith Barney related to their respective bond activities. Sadly, this is far from the first time that major firms such as JP Morgan and Morgan Stanley have been sanctioned by regulators. What is unique, however, is that both were sanctioned in the same month for their respective activity with respect to bonds.


From a political perspective, as Trump settles into his role as POTUS, keep in mind that his business career as a developer was and is centered around borrowing money to expand operations. As a result, his frame of reference for stimulating the economy will likely be to promote government and private sector borrowing to expand operations – and, in doing so, fuel the economy and drive the U.S. to higher economic ground. If he does move towards what is familiar and is effective in instituting change, then he may create a bond-friendly environment. However, from an investment perspective, some argue that the recent bear market for bonds may have a very long and bad run. The argument is that rates are lower than they should be (an argument that has been made for years) and, if rates finally rise and inflation picks up due to Trump’s economic bent or for any other reason, bonds could take a beating.

Regardless of which direction bonds move, the speculation and diverse opinions create opportunities for investors and, unfortunately, opportunities for financial firms to take advantage of those investors. Take into consideration last month’s sanctions against JP Morgan and Morgan Stanley, both of which are detailed below.

FINRA’s Sanctions

FINRA’s sanction of J.P. Morgan last month related to failures to timely report municipal bond transactions, which negate regulatory efforts to make bond trading more transparent (i.e. to make the conflicts of interest more apparent). FINRA also found compliance and supervision breakdowns which led to these failures to timely and accurately report.

FINRA’s sanction of Morgan Stanley involved, among other things, transactions in municipal bonds in which Morgan Stanley made trades that were not “fair and reasonable” (i.e. Morgan Stanley took advantage of its clients).


If you want to buy or sell bonds, you should be aware that many firms that you are trusting to look after you have “bond desks” who buy bonds from you at the cheapest price they can and sell bonds to you at the highest price they can. This means an employee of the firm you trust is actually trying to make a profit for the firm at your expense. We believe much of the bond investing public is unaware of this significant conflict of interest and the lack of transparency in the bond world allows this conflict of interest to go largely unabated. This unabated conflict of interest corrupts the bond market for the retail investor and investors need to keep this in mind anytime they are pitched individual bonds, unless the source of the pitch is knowledgeable and the trade prices are completely transparent and free of any conflict of interest.


Vernon Litigation Group is a law firm with offices in Naples, Florida and Buckhead, Georgia that represents clients in courtroom litigation, arbitration, including FINRA arbitration, negotiation, and mediation throughout the United States. Our lawyers have collectively represented hundreds of investors in securities arbitration and litigation claims nationwide and recovered many millions of dollars from purported financial professionals and financial institutions, both large and small. Please contact us to discuss your rights if you believe a Wall Street firm or other investment firm has failed to act in your best interests or otherwise abused your trust with respect to bonds or other investment products or services.

For more information, visit our website at or contact us by phone at (239) 319-4434 or by e-mail at to speak with a representative of Vernon Litigation Group.

Attorney Chris Vernon

Mr. Vernon handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.

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