A broker-dealer settled FINRA charges for supervisory failures concerning "excessive sales charges" in early rollovers of Unit Investment Trusts ("UITs") in violation of FINRA Rule 3110 ("Supervision"). FINRA Rule 3110 requires broker-dealers to establish, maintain and enforce both supervisory systems and written supervisory procedures reasonably designed to supervise broker-dealers' activities and the activities of their representatives.
According to the Letter of Acceptance, Waiver and Consent, a registered representative of the firm imposed significant costs on customers by advising them to sell their UITs before maturity and then use the proceeds to purchase new UITs. FINRA stated that because of the structure of UITs, short-term trading may have been "unsuitable." Between January 2011 and December 2015, FINRA estimated that the registered representative cost customers $3,874,206.90 in sales charges from early rollovers of UITs. FINRA alleged that the company did not (i) have sufficient supervisory systems in place that addressed early rollovers or series-to-series rollovers or (ii) use any automated reports alerts or other systems to monitor potentially illicit trading patterns of early UIT rollovers.
FINRA noted that the firm demonstrated "extraordinary cooperation" by (i) providing "substantial assistance" during FINRA's investigation, (ii) creating and implementing a methodology for finding customers eligible for restitution, and (iii) putting into place corrective measures. To settle the charges, the company agreed to (i) a censure, (ii) pay a fine of $800,000, and (iii) disgorge $3,874,206.90.
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