FINRA Fines Four Firms Related to Sale of Risky ETFs

Representing Investors Nationwide

According to a Dow Jones newswire, The Financial Industry Regulatory Authority (FINRA), has ordered Citigroup Inc., Morgan Stanley, UBS AG and Wells Fargo & Co. to pay a combined $9.1 million for allegedly improper sales of leveraged and inverse exchange-traded funds (ETF). The four large wirehouse firms were fined more than $7.3 million and ordered to pay $1.8 million in restitution to customers who purchased the ETFs. In the complaint, FINRA investigators said the firms failed to supervise the agents selling the investments who allegedly sold them to investors who were not appropriate purchasers given the risk characteristics of the ETF’s. The Finra investigation found, between January 2008 and June 2009, the companies didn’t have adequate supervisory systems to monitor the sale of ETF’s and didn’t conduct adequate due diligence on the risks and features of the products. As such, FINRA said the companies didn’t have a reasonable basis to recommend the ETFs to their retail customers. In addition, the companies’ brokers made unsuitable recommendations of leveraged and inverse ETFs to some customers who had listed conservative investment objectives and risk profiles on their account documentation. In other words, the investments were “unsuitable” for those particular investors. Finra said Wells Fargo was the largest of the four in terms of sales volume of ETF’s during the relevant period. As is typical wiht most FINRA settlements, the companies involved neither admitted nor denied the charges but consented to Finra’s findings…what is known as a FINRA Acceptance, Waiver and Consent (AWC).

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