Chase Investment Services Corp. (CRD #25574, Chicago, Illinois) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $825,000.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to deliver approximately 1,101,271 prospectuses to its customers for certain mutual fund and exchange-traded fund (ETF) transactions.
The findings stated that the firm satisfied its mutual fund and exchange-traded fund prospectus delivery obligation by contracting with a third-party service provider. Although the firm relied on the service provider to deliver its mutual fund and ETF prospectuses to customers, it remained the firm’s responsibility to review transactions and verify that a prospectus was properly delivered when required. The firm launched a fee-based, discretionary, unified managed account through which clients could hold, among other investments, mutual funds, ETFs and money market funds. Due to a configuration error in the automated systems the firm utilized for prospectus delivery, the firm directed its service provider to deliver prospectuses for mutual fund and ETF transactions to the investment adviser, a firm affiliate, instead of customers. As a result, the firm failed to deliver prospectuses to the unified managed account customers for whose accounts mutual funds and ETFs had been purchased, and those customers were not provided with important disclosure information about the products. The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with federal rules regarding prospectus delivery requirements. The firm did not have a formal procedure for reviewing the service provider’s prospectus delivery reports for the unified managed accounts and did not assign anyone to review the service provider’s prospectus delivery reports or the service provider’s system for these accounts. The firm had access to the service provider’s system, which identified to whom a prospectus had been delivered, but failed to follow up and review the information to ensure that the service provider was sending prospectuses to customers as required. In fact, the firm did not provide the firm groups that monitored prospectus delivery compliance access to the service provider system. Thus, the firm did not detect that it failed to send prospectuses to its customers for mutual fund and ETF transactions.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
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