WASHINGTON—FINRA announced today that it has ordered Oppenheimer & Co. Inc. to pay more than $3.8 million in restitution to customers who incurred potentially excessive sales charges caused by early rollovers of Unit Investment Trusts (UITs). FINRA also fined the firm $800,000 for failing to reasonably supervise early UIT rollovers.
A UIT is an investment company that offers investors shares, or “units,” in a fixed portfolio of securities in a one-time public offering that terminates on a specific maturity date, often after 15 or 24 months. As a result, UITs are generally intended as long-term investments and have sales charges based on their long-term nature, including an initial and deferred sales charge and a creation and development fee. A registered representative who recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns.
From January 2011 through December 2015, Oppenheimer executed more than $6.4 billion in UIT transactions – $753.9 million of which were early rollovers. However, FINRA found the firm’s WSPs and supervisory system – which did not involve the use of automated reports or alerts – were not reasonably designed to supervise the suitability of those early rollovers. As a result, Oppenheimer did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur more than $3.8 million in sales charges that they would not have incurred had they held the UITs until their maturity dates.
Jessica Hopper, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, said, “FINRA member firms must be mindful of costs to customers when recommending a product, particularly when recommending that customers make short-term sales of products that are intended as long-term investments. Providing restitution to investors remains a top priority for FINRA.”
In determining the fine against Oppenheimer, FINRA recognized the firm’s extraordinary cooperation for having (1) provided substantial assistance to FINRA’s investigation, including by retaining an outside consultant to analyze the firm’s UIT trading and voluntarily sharing the results of the consultant’s analysis with FINRA; (2) developed and implemented a methodology that efficiently identified customers eligible for restitution; and (3) voluntarily employed corrective measures to revise its procedures to avoid recurrence of the conduct described above, including by establishing automated alerts to identify when representatives recommend early UIT rollovers.
FINRA’s 2018 Regulatory and Examination Priorities Letter advised that FINRA would be reviewing firms’ supervisory controls related to UITs.
In settling this matter, Oppenheimer neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.