Cambridge Investment Research a brokerage firm headquartered in Fairfield Iowa has been censured and fined $150,000.00 by Financial Industry Regulatory Authority (FINRA) supported by consenting to findings that the firm failed to supervise non-traditional exchange traded fund sales and variable annuity redemptions. Letter of Acceptance Waiver and Consent No. 2016048934301 (May 3, 2018).
According to the AWC, between June of 2012 and June of 2015, non-traditional exchange traded funds had been traded by eighty-four of the firm’s registered representatives, where those representatives effected four thousand seven hundred seventy-three transactions which totaled $127,000,000.00. Yet, the firm reportedly failed to supervise its staff in regard to exchange traded fund transactions.
For instance, the firm allowed for non-traditional exchange traded fund transactions to be executed by registered representatives without those representatives confirming that they completed the firm’s required non-traditional exchange traded fund training session. Critically, the AWC stated that every representative placed a non-traditional exchange traded fund transaction in a customer’s account before becoming trained according to the firm’s own training policy. Moreover, the firm enabled the firm’s customers to buy non-traditional exchange traded funds even though they had not submitted a disclosure form confirming their comprehension of the features and risks of investing in those products.
The AWC further revealed the firm’s procedures called for compliance personnel to follow up with registered representatives if their customers held non-traditional exchange traded funds in excess of ten days. Yet, between June of 2012 and June of 2015, there were no reasonable supervision systems created by the firm to monitor the periods where customers held non-traditional exchange traded funds in their portfolios. Consequently, the AWC stated that customers held exchanged traded funds for prolonged periods. FINRA found the firm’s supervisory failure in that regard to be violative of FINRA Rule 2010 and NASD Rule 3010.
According to the AWC, the firm also failed to create and implement adequate supervision systems concerning variable annuity redemptions. Particularly, between January of 2014 and March of 2016, there were one hundred instances in which customers had transferred proceeds from variable annuity redemptions into advisory accounts. The AWC stated that the firm neglected to confirm whether those transactions had been recommended by the firm’s registered representatives and needed to be reviewed for suitability. Consequently, FINRA found that the firm’s conduct was violative of FINRA Rules 4511, 3110, 2010 and NASD Rule 3010.
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