FINRA Fines Twelve Firms A Combined $6.7M

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FINRA Fines Twelve Firms A Combined $6.7M

FINRA ordered twelve firms to pay restitution over $4 million and fines over $2.6 million for failing to apply sales charge discounts to customers’ purchases of Unit Investment Trusts (“UITs”) and relevant supervisory failures.

The firms sanctioned include First Allied Securities, Inc. of San Diego, CA; Fifth Third Securities, Inc. of Cincinnati, OH; Securities America, Inc. of La Vista, NE; Cetera Advisors LLC of Denver, CO; Park Avenue Securities LLC of New York, NY; Commonwealth Financial Network of Waltham, MA; MetLife Securities, Inc. of New York, NY; Comerica Securities of Detroit, MI; Cetera Advisor Networks LLC of El Segundo, CA; Ameritas Investment Corp. of Lincoln, NE; Infinex Investments, Inc. of Meridian, CT; and The Huntington Investment Company of Columbus, OH.

FINRA’s Executive Vice President and Chief of Enforcement, Brad Bennett, stated, “Firms need to ensure that their registered representatives are providing customers the sales charge discounts to which they are entitled. The firms sanctioned today failed to provide these discounts, resulting in customer harm in the form of higher costs for which customers have been or will be reimbursed.”

A UIT is a form of investment company which offers redeemable units of a generally fixed portfolio of securities that terminate on a set date. UIT sponsors typically offer sales charge discounts to investors, called “breakpoint discounts” and “rollover and exchange discounts.” A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase, such that the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units). A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.

In March of 2004, FINRA issued a Regulatory Notice to firms called, “Unit Investment Trust Sales,” to remind broker-dealers that they should create and install procedures to make sure customers get the right sales charge discounts for UITs.

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