SagePoint to pay $1.3 Million in Restitution for Supervisory Issues related to early UIT rollovers
According to the Financial Industry Regulatory Authority (FINRA) today, SagePoint Financial (CRD #133763, Phoenix, AZ) was censured and fined $300,000 and ordered to pay restitution to customers in the amount of $1,315,373.01, plus interest.
According to FINRA, from January 2013 through December 2017, SagePoint allegedly failed to establish and maintain a supervisory system and failed to establish, maintain, and enforce written supervisory procedures (WSPs) that were reasonably designed to supervise the suitability of representatives’ recommendations to customers for early rollovers of Unit Investment Trusts.
Short-term trading of UITs may be unsuitable because of the long-term nature of UITs, their structure, and their costs.
According to FINRA’s findings, SagePoint purportedly executed more than $895 million in UIT transactions that reportedly generated more than $17.2 million in sales charges.
The alleged $895 million in UIT transactions included more than $203.7 million in proceeds from transactions in which UITs were reportedly sold more than 100 days before their maturity dates and some or all of the proceeds were reportedly used to purchase one or more new UITs (early rollovers).
Approximately $65.8 million of the proceeds were for purported transactions in which customers sold UITs more than 100 days prior to their maturity dates and reportedly used some or all of the proceeds to purchase a subsequent series of the same UIT, which had, in many cases, the same or similar investment objectives and strategies as the prior series (series-to-series early rollovers).
SagePoint allegedly failed to establish and maintain a supervisory system and failed to establish, maintain, and enforce WSPs reasonably designed to supervise the suitability of representatives’ recommendations to customers for early rollovers of UITs.
According to FINRA, SagePoint purportedly failed to use automated reports, alerts, or similar tools to supervise for potentially unsuitable patterns of early UIT rollovers. Similarly, the firm’s review of UIT transactions through its order entry system was not focused on suitability concerns related to early UIT rollovers. As a result, SagePoint purportedly failed to identify that firm representatives recommended potentially unsuitable early rollovers, including series-to-series early rollovers, which caused customers to incur $1,315,373.01 in sales charges that they would not have incurred had they held the UITs until their maturity dates.
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