The Financial Industry Regulatory Authority (FINRA) Wednesday fined Oppenheimer & Co. Inc. $2.25 million and ordered the firm to pay restitution of more than $716,000 to some retail customers for selling them unsuitable high-risk investments.
The products were leveraged, inverse, and inverse-leveraged exchange-traded funds (non-traditional ETFs).
Oppenheimer is a securities broker–dealer based in New York.
In mid 2009, FINRA issued a Regulatory Notice (pdf) that advised broker-dealers of the risks and inherent complexities of certain non-traditional ETFs.
In August 2009, Oppenheimer adopted policies prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs. The policies also prohibited the representatives from executing unsolicited non-traditional ETF purchases for retail customers unless the customers met certain criteria, inlcuding liquid assets of more than $500,000.
Oppenheimer “failed to reasonably enforce these policies,” FINRA said.
Customers who were sold non-traditional ETFs included:
- An 89-year conservative customer with annual income of $50,000 held 96 solicited non-traditional ETF positions for an average of 32 days (and for up to 470 days), resulting in a net loss of $51,847.
- A 91-year conservative customer with an annual income of $30,000 held 56 solicited non-traditional ETF positions for an average of 48 days (and for up to 706 days), resulting in a net loss of $11,161.
- A 67-year conservative customer with an annual income of $40,000 held two solicited non-traditional ETF positions in her account for 729 days, resulting in a net loss of $2,746.
Oppenheimer also “failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs,” FINRA said.
From August 2009 through September 30, 2013, more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions for customers totaling about $1.7 billion.
FINRA is the biggest independent regulator for all securities firms doing business in the United States. In 2015, it brought 1,512 disciplinary actions against registered brokers and firms and levied $95 million in fines.
FINRA enforcement chief Brad Bennett said Wednesday: “Written procedures are worthless unless accompanied by a program to enforce them. While Oppenheimer’s procedures prohibited solicitation of non-traditional ETFs, the absence of any meaningful compliance effort resulted in its representatives continuing to solicit unsuitable non-traditional ETF purchases, including a number involving elderly investors.”
Oppenheimer & Co. Inc. neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
In January 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) assessed a $20 million civil penalty against Oppenheimer & Co for “willfully violating” the Bank Secrecy Act.
The firm admitted that it failed to establish and implement an adequate anti–money laundering program.
In 2013, FINRA fined Oppenheimer $1.4 million for violations of securities law and anti–money laundering failures.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.