FINRA Fines 25 Firms More Than $2.1 Million for Failures in Mutual Fund Breakpoint Review, Other Violations
Case Concludes Series of Actions Arising From FINRA's Mutual Fund Breakpoint Initiative
Washington, DC — FINRA announced today that it has fined 25 broker-dealers a total of $2,145,000 for failures related to their completion of FINRA's (then NASD's) firm self-assessment of mutual fund breakpoint discount compliance.
The self-assessment required firms that sold front-end load mutual funds to review their compliance in providing breakpoint discounts to customers during 2001 and 2002 and report those results to FINRA. Breakpoint discounts are volume discounts applicable to front-end sales charges (front-end loads) on Class A mutual fund shares. The self-assessment followed findings by NASD, the NYSE and the Securities and Exchange Commission that nearly one in three mutual fund transactions that appeared eligible for a breakpoint discount did not receive one.
"FINRA is hindered in carrying out its regulatory mission when firms fail to adequately self-assess their conduct and report the results accurately and in a timely manner," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "Today's settlements are a clear message that when firms are required to perform self-assessments, FINRA demands that they be diligent and fully compliant."
The findings made in today's settlements result from FINRA's review of firms' compliance with the self-assessment requirements. The violations include failing to accurately report information; failing to send timely notices and responses to customers concerning the availability of breakpoint discounts; failing to provide timely refunds for missed breakpoints to customers; and failing to correctly calculate such refunds.
In addition, FINRA found that three firms — Fox & Company Investments, Inc., First Midwest Securities, Inc. and Chase Investment Services, Corp. — failed to deliver breakpoint discounts during a later review period and continued to fail to have reasonable written supervisory procedures in place to assure that appropriate breakpoint discounts would be delivered to their customers during that later period.
In its review, FINRA found that 14 firms — J.J.B. Hilliard, W.L. Lyons Inc., New England Securities, SunAmerica Securities, Inc., Multi-Financial Securities Corporation, H. Beck, Inc., Leonard & Company, Fox & Company Investments, Inc., Investors Capital Corp., vFinance Investments, Inc., FSC Securities Corporation, National Securities Corporation, Advantage Capital Corporation, Steven L. Falk & Associates, Inc. and Securities America, Inc. — failed to accurately and/or fully complete their self-assessments.
FINRA further found that six of the firms — Multi-Financial Securities Corporation, Intersecurities Inc., SWS Financial Services, Spelman & Co. Inc., Securities America, Inc., and SIGMA Financial Corporation — failed to accurately complete a comprehensive trade-by-trade review of transactions. The trade-by-trade review was a required part of their customer remediation process following the self-assessment.
Six firms — ProEquities, Inc., FSC Securities Corporation, Lincoln Investment Planning, Inc., New England Securities, Gary Goldberg & Co., Inc., and Leonard & Company — failed to provide timely refunds of breakpoint discounts to their customers. In addition, five firms — Leonard & Company, Gary Goldberg & Co., Inc., Financial West Group, GunnAllen Financial, Inc. and ProEquities, Inc. — failed to notify their customers on a timely basis — or failed to notify them at all — of the potential for reimbursement for missed breakpoint discounts. In addition, GunnAllen and ProEquities did not timely respond to customer inquiries about breakpoint discounts.
The names of the firms charged and fines assessed are:
|Name of the Firms||Fines Assessed|
|J.J.B. Hilliard, W.L. Lyons Inc.||$500,000|
|New England Securities||$500,000|
|SunAmerica Securities, Inc.||$300,000|
|Multi-Financial Securities Corporation||$150,000|
|H. Beck, Inc.||$140,000|
|SWS Financial Services||$70,000|
|Leonard & Company||$60,000|
|Securities America, Inc.||$55,000|
|SIGMA Financial Corporation||$50,000|
|Fox & Company Investments Inc.||$45,000|
|Chase Investment Services Corp.||$32,500|
|vFinance Investments, Inc.||$27,500|
|Investors Capital Corp.||$25,000|
|National Securities Corporation||$25,000|
|Gary Goldberg & Co., Inc||$19,500|
|FSC Securities Corporation||$15,000|
|Lincoln Investment Planning, Inc.||$15,000|
|Spelman & Co.||$10,000|
|Stephen L. Falk & Associates, Inc.||$7,500|
|First Midwest Securities, Inc.||$7,000|
|GunnAllen Financial, Inc.||$6,000|
|Advantage Capital Corporation||$5,000|
|Financial West Group||$5,000|
The fines for two firms — New England Securities and H. Beck, Inc. — include other charges in addition to breakpoint self-assessment failures. The additional findings against H. Beck relate to fee-based brokerage violations. Additional findings against New England Securities involve anti-money laundering violations, customer complaint and other reporting violations and supervisory deficiencies.
All 25 firms settled these matters without admitting or denying the findings, but consented to the entry of FINRA's findings.
Investors can use FINRA's Fund Analyzer, a new online tool, to search more than 18,000 funds for detailed information on a fund's breakpoint schedules and a complete breakdown of a fund's fees. For more information concerning breakpoints, see the FINRA Investor Alert Mutual Fund Breakpoints: A Break Worth Taking.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.
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