FINRA sanctions Oppenheimer $2.9M for unsuitable sales of nontraditional ETFs
FINRA fined Oppenheimer & Co. $2.25 million for unsuitable sales of nontraditional ETFs and supervisory failures, and further ordered the firm to pay $716,000 in restitution to affected clients.
The regulator says that it issued a notice in 2009 to broker-dealers regarding the risks and complexities of nontraditional ETFs. FINRA says Oppenheimer failed to implement these policies and that the firm's advisers "continued to solicit retail customers to purchase nontraditional ETFs and continued to execute unsolicited non-traditional ETF transactions even though the customers did not meet Oppenheimer's stated criteria."
In the four years following the regulatory notice, Oppenheimer's registered representatives executed more than 30,000 nontraditional ETF transactions in approximately 1,700 client accounts, FINRA says. Those transactions totaled approximately $1.7 billion, according to the regulator.
"Written procedures are worthless unless accompanied by a program to enforce them," Brad Bennett, FINRA's chief of enforcement, said in a statement. "While Oppenheimer's procedures prohibited solicitation of nontraditional ETFs, the absence of any meaningful compliance effort resulted in its representatives continuing to solicit unsuitable nontraditional ETF purchases, including a number involving elderly investors."
A spokeswoman for Oppenheimer says the firm "has for several years put in effective enhanced procedures and controls surrounding the sale of Leveraged ETFs. The firm is compensating affected clients noted in the FINRA release and is happy to put this matter behind it."
Oppenheimer accepted FINRA's findings without admitting or denying the charges, according to FINRA.
The New York-based firm has come under regulatory scrutiny in recent years. In January 2015, Oppenheimer agreed to pay $20 million to settle claims brought by the SEC and the Treasury Department's Financial Crimes Enforcement Network that the firm had improperly sold billions of shares of penny stocks in an unregistered offering on behalf of an offshore brokerage, according to regulators. Oppenheimer also admitted that it failed to report red flags regarding its client, Gibraltar Global Securities, a Bahamas-based firm.
In March 2015, FINRA fined Oppenheimer $2.5 million and ordered the firm to pay restitution of $1.25 million for failing to supervise a barred broker who allegedly stole money from clients and excessively traded in their brokerage accounts.
As part of its most recent regulatory action, FINRA says Oppenheimer failed to properly train advisers and their supervisors, and it failed to use an effective surveillance system to identify solicited nontraditional ETF trades.
The regulator charges that Oppenheimer's registered reps recommended complex products to clients with conservative investment objectives. Some of these clients were elderly, according to FINRA.
FINRA says that one 89-year-old client, who had an annual income of $50,000, held 96 solicited nontraditional ETF positions for an average of 32 days for a net loss of $51,847. The client held one of those positions for 470 days, FINRA says.
The restitution Oppenheimer will be paying to individual clients ranges from $26 to $63,000, according to FINRA.