Oppenheimer & Co to pay $3.8m in restitution over supervisory failures involving unit investment trusts

Maria Nikolova

FINRA also fined the firm $800,000 for its failure to reasonably supervise early UIT rollovers.

The United States Financial Industry Regulatory Authority (FINRA) has earlier today announced the imposition of $800,000 fine on Oppenheimer & Co. Inc. for failing to reasonably supervise early unit investment trust (UIT) rollovers. FINRA also ordered Oppenheimer & Co. Inc. to pay more than $3.8 million in restitution to customers who incurred potentially excessive sales charges caused by early rollovers of UITs.

FINRA explains that UITs are generally intended as long-term investments and have sales charges based on their long-term nature, including an initial and deferred sales charge and a creation and development fee. A registered representative who recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns.

From January 2011 through December 2015, Oppenheimer executed more than $6.4 billion in UIT transactions – $753.9 million of which were early rollovers. FINRA found the firm’s written procedures and supervisory system – which did not involve the use of automated reports or alerts – were not reasonably designed to supervise the suitability of those early rollovers. As a result, Oppenheimer did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur more than $3.8 million in sales charges that they would not have incurred had they held the UITs until their maturity dates.

In deciding on the fine against Oppenheimer, FINRA recognized the firm’s cooperation for having

  • (1) provided substantial assistance to FINRA’s investigation, including by retaining an outside consultant to analyze the firm’s UIT trading and voluntarily sharing the results of the consultant’s analysis with FINRA;
  • (2) developed and implemented a methodology that efficiently identified customers eligible for restitution; and
  • (3) voluntarily employed corrective measures to revise its procedures to avoid recurrence of the conduct described above, including by establishing automated alerts to identify when representatives recommend early UIT rollovers.

In settling this matter, Oppenheimer neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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