Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer & Co. Inc. $1 million for submitting mutual fund breakpoint data to FINRA that the firm knew to be inaccurate, as well as for related supervisory deficiencies. FINRA also ordered the firm to engage an independent consultant to evaluate its policies, systems and procedures for responding to information requests from regulators.
"The self-regulatory model depends on accurate, timely, and complete responses by firms to informational requests from FINRA," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement. "This settlement sends a clear message to broker dealers that they must have sound programs that insure conscientious responses to regulatory requests as well as reasonable safeguards when responsibility is delegated."
FINRA's (then NASD) initial request to Oppenheimer for a breakpoint assessment was made in March 2003 as part of a review of approximately 2,000 broker-dealers that sold front-end load mutual funds in 2001 and 2002. That request followed findings by NASD and other regulators that showed that nearly one in three mutual fund transactions in front-end load mutual funds that appeared eligible for a breakpoint discount did not receive one.
FINRA found that on two occasions, June 11, 2003, and Nov. 20, 2003, Oppenheimer submitted inaccurate and incomplete data in response to NASD's request to perform a self-assessment of its mutual fund breakpoint discount practices. The firm knowingly, or at a minimum recklessly, submitted flawed data to NASD, failed to notify NASD that the data was flawed, failed to follow up to correct the firm's data and failed to timely submit accurate data to NASD.
In its June 11 submission, Oppenheimer provided data that it knew to be flawed, without advising NASD of the known flaws. On June 13, 2003, NASD advised the firm that its submission was "pervasively flawed" and "rife with errors" and directed Oppenheimer to immediately generate and submit a new self-assessment.
The investigation further found that the firm's second self-assessment, submitted more than five months after the firm's initial submission, contained obvious deficiencies, such as the inclusion of ineligible transactions that should have been excluded from the sample; the failure to identify linked accounts; the failure to include proper discount information; the failure to provide actual sales charge percentages, appropriate sales charge percentages and proper discount descriptions; and the failure to identify overcharged trades, among other problems. Each of Oppenheimer's self-assessment submissions so completely and fundamentally failed to comply with the regulatory request that FINRA was unable to rely on Oppenheimer's data to analyze the firm's breakpoint compliance both in absolute terms and in relation to the approximately 2,000 other registered firms that contemporaneously submitted breakpoint self-assessments.
In addition to a fine, censure and independent consultant's review, Oppenheimer is obligated to conduct internal audits of its processes for intake, assignment and responses to regulatory inquiries. Oppenheimer is required to report its findings to FINRA quarterly for a period of six quarters.
Oppenheimer settled the matter without admitting or denying the charges, but consented to the entry of FINRA's findings and dismissal of charges against Oppenheimer CEO Albert Grinsfelder Lowenthal.
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 2006, members of the public used this service to conduct more than 4.7 million searches for existing brokers or firms and requested more than 207,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.finra.org/brokercheck. Investors can also access this service by calling (800) 289-9999.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating industry participants to examining securities firms; writing rules; enforcing those 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 registered firms. For more information, please visit our Web site at www.finra.org.
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