The Financial Industry Regulatory Authority (FINRA) announced on June 8
that they fined Oppenheimer & Co. Inc. $2.25 million and have ordered
the firm to pay $716,000 in restitution to various customers. According
to FINRA, the fines are “for selling leveraged, inverse, and inverse-leveraged
exchange-traded funds (non-traditional ETFs) to retail customers without
reasonable supervision, and for recommending non-traditional ETFs that
were not suitable.”
In response to FINRA Regulatory Notice 09-31, which reminded brokerage
firms of sales practice obligations relating to leveraged and inverse
ETFs, Oppenheimer implemented policies to prevent its representatives
from soliciting retail customers to buy non-traditional ETFs in August
of 2009, as well as prohibiting its representatives from executing unsolicited
non-traditional ETF purchases for retail customers. They implemented exceptions
if the customers met certain criteria, like having liquid assets worth
more than $500,000.
However, according to FINRA, Oppenheimer failed to enforce these policies,
and so from August 2009 through September 30, 2009, over 30,000 unsolicited
non-traditional ETF transactions, totaling nearly $1.7 billion for customers,
were executed by Oppenheimer representatives even though the customers
did not meet the criteria set by Oppenheimer.
"Written procedures are worthless unless accompanied by a program
to enforce them,” said FINRA Vice President and Chief of Enforcement
Brad Bennett. “While Oppenheimer’s procedures prohibited solicitation
of non-traditional ETFs, the absence of any meaningful compliance effort
resulted in its representatives continuing to solicit unsuitable non-traditional
ETF purchases, including a number involving elderly investors.”
FINRA also found that Oppenheimer failed to establish a supervisory system
or implement any exception or surveillance reports to appropriately monitor
the holding periods for non-traditional ETFs. FINRA says that without
these reports, some retail customers improperly held non-traditional ETFs
in their accounts for inappropriate periods of time, which resulted in
Oppenheimer also allegedly failed to take reasonable steps to determine
the features and risks of non-traditional ETFs. Because of this, FINRA
found that Oppenheimer could not reasonably recommend these non-traditional
ETFs to customers. In its report, FINRA included examples of specific
unsuitable non-traditional ETF purchases solicited by Oppenheimer representatives:
- An 89-year-old conservative customer with annual income of $50,000 held
96 solicited non-traditional ETF positions for an average of 32 days (and
at least one position was held for up to 470 days), resulting in a net
loss of $51,847.
- A 91-year-old conservative customer with an annual income of $30,000 held
56 solicited non-traditional ETF positions for an average of 48 days (and
at least one position was held for up to 706 days), resulting in a net
loss of $11,161.
- A 67-year-old conservative customer with an annual income of $40,000 held
two solicited non-traditional ETF positions in her account for 729 days,
resulting in a net loss of $2,746.Oppenheimer & Co. Inc. neither admitted
nor denied the charges by concluding this settlement, but consented to
all of FINRA’s findings.
If you lost money purchasing non-traditional ETFs from Oppenheimer &
Co. Inc., contact our investor fraud attorneys at Meyer Wilson today.
All of our cases are handled on a contingency fee basis, so
fill out our online form for a free, in-depth consultation or call us at (888) 390-6491 to set
up a meeting today.