Oppenheimer to Pay $4.7 Mln for UIT Rollover Violations

Oppenheimer & Co. has agreed to pay nearly $4.7 million to settle allegations that it failed to properly supervise $6.4 billion worth of unit investment trust sales over five years, the Financial Industry Regulatory Authority said on Monday. 

The penalty includes an $800,000 fine and $3.87 million in restitution to customers who may have incurred excessive charges as a result of recommendations that they sell their UITs before their maturity date and buy similar investments with the proceeds, according to a letter of acceptance, waiver and consent signed by the firm and Finra.

Oppenheimer did not use automated reports or alerts reasonably designed to help it identify unsuitable UIT transactions, the regulator said. Almost $754 million of UIT trades at the firm between January 2011 and December 2015 involved early rollovers, Finra said.

Oppenheimer, which also accepted a censure from Finra, agreed to the sanctions without admitting or denying the findings. 

In determining the fine, Finra gave New York-based firm cooperation credit for hiring an outside consultant to analyze its UIT trading, for sharing the results with examiners and for voluntarily putting in place corrective measures, the regulator said in a press release. 

UITs typically have maturity dates of 15 to 24 months, and carry initial and deferred sales charge and a creation-and-development fee tailored to their being held to maturity. Finra isolated supervisory controls aimed at identifying early UIT redemptions and rollovers to generate excess commissions as a Regulatory and Examination priority in 2018.

A spokeswoman for Oppenheimer declined to comment. 

“FINRA member firms must be mindful of costs to customers when recommending a product, particularly when recommending that customers make short-term sales of products that are intended as long-term investments,” Finra’s acting enforcement head Jessica Hopper said in a prepared statement. “Providing restitution to investors remains a top priority.”

Finra and the Securities and Exchange Commission have imposed millions of dollars of fines and restitution orders against member firms for UIT-related supervisory failures. 

In September, Raymond James Financial agreed to pay $15 million in fines and restitution as part of an SEC settlement related in part to UIT sales issues.  Finra fined Morgan Stanley $3.25 million in 2017 and ordered it to pay $10 million to customers over similar allegations of failing to supervise UIT sales.  

Regulators also have suspended individual brokers over UIT sales practices.