Oppenheimer & Co. Sanctioned $2.9 Million in Fines and Other Penalties for Unsuitable Sales

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 substantial losses.

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 (800) 738-1960 to set up a meeting today.


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