Ameriprise Financial Services, headquartered in Minneapolis, Minnesota, was censured and fined $100,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm failed to create and adequately maintain a supervisory system to identify and prevent unsuitable trading in closed end funds. Letter of Acceptance, Waiver and Consent, No. 2014039843501 (June 20, 2016).
According to the AWC, from January 2010 through April 2013, Ameriprise had taken part in the IPOs of closed end funds. Ameriprise’s trading of closed end funds was apparently supervised by the firm’s Centralized Supervision Unit. The AWC stated that the registered principals were tasked with reviewing transactions, which included closed end fund purchases at initial public offerings.
The AWC stated that Ameriprise had not designed and maintained supervisory procedures and systems for purposes of ensuring that stockbrokers’ trading of closed end funds were supervised. The AWC noted that Ameriprise was aware that such funds were geared for long term investing, and that it would be unsuitable for short-term trading in such products given the sales charges associated with purchases at the initial public offering. However, the firm apparently had no way of identifying and possibly preventing unsuitable short-term trading.
In one case identified in the AWC, from April 2010 through November of 2011, an Ameriprise representative, MH, traded closed end funds in an unsuitable fashion in the accounts of sixteen clients. Even after MH’s conduct was reportedly identified by the Centralized Supervision Unit principals on two occasions, nothing was done. It was not until November of 2011, according to the AWC, that MH’s investment recommendations were investigated which led to the representative being terminated. FINRA found that the lack of response was demonstrative that the firm was not appropriately supervising suitability regarding closed end funds.
Additionally, the AWC stated that prior to April of 2013, Ameriprise’s Central Supervision Unit did not undertake measures to review a surveillance report tool that could have detected possible patterns of unsuitable transactions. FINRA found that Ameriprise’s aforementioned supervisory failures were violative of FINRA Rule 2010 and NASD Rule 3010.
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