The Financial Industry Regulatory Authority recently announced that it has fined Oppenheimer & Co. Inc. $2.25 million and ordered the firm to pay restitution of more than $716,000 to affected customers for selling leveraged, inverse and inverse-leveraged exchange-traded funds (ETFs) to retail customers without reasonable supervision, and for recommending these non-traditional ETFs that were not suitable.
FINRA notes that while Oppenheimer instituted policies in August 2009 prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs, and also prohibiting them from executing unsolicited non-traditional ETF purchases for retail customers unless the customers met certain criteria, e.g., the customer had liquid assets in excess of $500,000, the BD failed to “reasonably enforce these policies.”
Oppenheimer instituted the policies 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.
But because Oppenheimer failed to enforce the policies (according to FINRA), its reps 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.
FINRA further alleged that from August 2009 through September 2013, more than 760 Oppenheimer reps executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers.
FINRA found that Oppenheimer did not establish an adequate supervisory system to monitor the holding periods for non-traditional ETFs. And that 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 weeks, months and sometimes years, 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.
In concluding the settlement, Oppenheimer & Co. Inc. neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
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