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FINRA penalizes Oppenheimer & Co. $3 million for selling risky ETFs to seniors

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.

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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.

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