FINRA has ordered Chase Investment Services Corporation to reimburse customers almost $2 million for losses related to the company's recommendation of certain unit investment trusts (UITs) and floating rate funds, according to a Nov. 15 news release.
UITs are highly speculative products that can contain a significant percentage of high-yield or junk bonds. Floating rate funds are often illiquid products that invest in loans made to below-investment-grade entities. These characteristics make both UITs and floating rate funds risky, complicated products suitable only for experienced, knowledgeable investors who can afford to take the risk.
Despite this, a FINRA investigation found that Chase brokers made almost 260 recommendations of the products to some of their unsophisticated and inexperienced customers whose "conservative" risk tolerance, liquidity needs, and/or desire for principal protection made the products unsuitable for them. Customer losses stemming from the recommendations totaled approximately $1.4 million for the unsuitable UITs and nearly $500,000 for the unsuitable floating rate funds.
FINRA also charged Chase with failing to properly supervise the sale of the products. Chase neither admitted nor denied FINRA's charges, but did consent to entry of the findings. For more information, read the full FINRA news release here.