FINRA Fines Oppenheimer $2.9 Million For Unsuitable Sales of Non-Traditional ETFs and Related Supervisory Failures
Today, the Financial Industry Regulatory Authority (FINRA) announced it has fined Oppenheimer & Co. Inc. $2.25 million and ordered the firm to pay restitution of more than $700,000.00 to retail clients that lost money on the purchases of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). FINRA alleged the sales were done without reasonable supervision and that the non-traditional ETFs that were not suitable for those customers.
In August 2009, in response to FINRA Regulatory Notice 09-31, which advised broker-dealers of the risks and inherent complexities of certain non-traditional ETFs, Oppenheimer instituted policies prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs, and also prohibited them from executing unsolicited non-traditional ETF purchases for retail customers unless the customers met certain criteria, including liquid assets in excess of $500,000.00. Oppenheimer, however, failed to reasonably enforce these policies; thus, representatives continued to solicit retail customers to purchase non-traditional ETFs and continued to execute unsolicited non-traditional ETF transactions even though the customers did not meet Oppenheimer’s stated criteria. From August 2009 through September 30, 2013, more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions for their clients totaling approximately $1.7 billion.
In addition, FINRA found that Oppenheimer did not establish an adequate supervisory system to monitor the holding periods for non-traditional ETFs. The firm failed to employ any surveillance or exception reports to effectively monitor the holding periods for non-traditional ETFs, so certain retail customers held non-traditional ETFs in their accounts for extended period of time and resulting in substantial losses.
FINRA also found that Oppenheimer failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs and, as a result, did not have a reasonable basis to recommend these ETFs to retail customers. Similarly, Oppenheimer representatives solicited and effected non-traditional ETF purchases that were unsuitable for specific customers.
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