Finra Fines Oppenheimer $525K for Misreporting Customer Cost Basis
The Financial Industry Regulatory Authority has censured and fined Oppenheimer & Co. $525,000 over allegations it “negligently misrepresented” cost basis information on over 1,000 customer account statements and tax forms.
When customers sell a partial sale of a stock holding acquired over a period of time, the cost basis, or original price plus commissions, must be reported to the Internal Revenue Service on 1099 tax forms on a “first in, first out” basis unless the broker specifies prior to the settlement date to sell more recently acquired shares, according to IRS rules.
Oppenheimer, however, “regularly granted requests” from brokers to adjust information long after the settlement date to make it appear in 1099 tax documents and in account statements that the customer had sold sales with more favorable tax implications.
In one case, a broker sold 150 shares in a customer’s account and incurred $19,000 in capital gains because the broker failed to specify to sell more recently acquired shares. The rep contacted the firm’s operations group more than nine months later to request a change in reporting on which shares were sold to reflect capital gains of $10,000.
The actions resulted in inaccurate 1099 forms that misrepresented which shares had actually been sold and violated Finra’s Rule 4511 and Rule 2340 requiring firms to keep accurate books and records, including in quarterly customer account statements. The books and records violation also triggered a violation of Finra’s Rule 2010 requiring “high standards of commercial honor.”
“Emails and documents pertaining to these changes (where they exist) showed that the firm’s registered representatives and other operations personnel, for the most part, likewise lacked a proper understanding of the regulations applicable to post settlement cost basis changes,” Finra said.
A spokesperson for Oppenheimer, which has around 1,900 brokers, said the firm is “pleased to have concluded this matter.”
The firm settled the charges without admitting or denying the findings. It also agreed to hire an independent consultant to review its policies and procedures on cost basis reporting and calculation and implement recommendations.
The Finra action did not specify whether the misreporting ultimately resulted in erroneous tax payments or whether Oppenheimer or the customers faced any consequences from the IRS.
An IRS spokesperson declined to comment on whether there is an invitation citing federal law prohibiting it from discussing individual taxpayers.
The Oppenheimer spokesperson did not immediately return a request for additional comment on potential IRS consequences.