FINRA recently censured Huntleigh Securities Corporation and ordered it to pay $98,252.33, plus interest, in restitution to customers pursuant to an AWC (Acceptance, Waiver and Consent) settlement. The firm was also required to review and amend, as necessary, its written supervisory procedures (WSPs) and compliance policies. With neither admitting nor denying the findings, the firm agreed to findings that it failed to identify and apply sales-charge discounts to certain customers’ eligible purchases of unit investment trusts (UITs), resulting in excessive sales charges.
FINRA’s found the firm failed to: (1) establish and maintain a supervisory system and WSPs that were reasonably designed to monitor and apply sales-charge discounts to eligible UIT purchases, and (2) have a system to ensure that sales-charge discounts were applied to all qualifying purchases.
FINRA further found that the firm failed to establish and maintain a supervisory system and WSPs reasonably designed to detect and prevent unsuitable short-term trading of UITs and mutual fund switching. According to FINRA, the firm did not instruct its registered representatives regarding appropriate holding periods for UITs and, moreover, had an inadequate system for detecting potentially unsuitable short-term UIT rollovers and mutual-fund switches.
Finally, while other compliance reports may have identified, for unrelated reasons, accounts in which mutual fund switching and short-term UIT trading was taking place, the firm never evaluated whether UITs or mutual funds were being used inappropriately as short-term trading vehicles. As a result, the firm’s supervisory system allowed mutual-fund switching and short-term UIT trading to go undetected.
Brokerage firms are obligated to reasonably supervise their securities business lines, and must therefore have in place adequate supervisory procedures and compliance policies to detect and prevent unsuitable investment recommendations and broker fraudulent conduct in customer accounts. FINRA takes this supervision responsibly extremely seriously.
As a FINRA defense lawyer, I have been involved in several FINRA investigations focusing upon the adequacy of a firm’s WSPs and their actual implementation. Quite often, a series of underlying violations can be traced directly to the absence, or inadequacy, of effective supervisory procedures.
FINRA defense lawyer David Chase, principal of the Law Firm of David R. Chase, P.A., a FINRA regulatory defense law firm, represents brokerage firms and registered representatives nationwide in FINRA investigations and enforcement actions. For a confidential consultation about your legal rights and strategic options, contact FINRA defense lawyer David Chase at (800) 760-0912 or david@davidchaselaw.com.
