Feltl & Company Corporation, headquartered in Minneapolis, Florida, was censured and fined $250,000.00 by the Financial Industry Regulatory Authority (FINRA) for failing to apply sales charge discounts to eligible customers’ purchases of unit investment trusts; for failing to develop and manage the requisite supervisory practices to ensure eligible customers received sales charge discounts on UIT purchases; and supervisory failures pertaining to detecting and preventing unsuitable transactions. Letter of Acceptance, Waiver and Consent, No. 2013036524902 (May 9, 2016).
The AWC stated that from May 1, 2009 through April 30, 2014, Feltl did not detect and apply UIT discounts when customers were eligible to receive such. According to the AWC, 1,100 UIT purchases were eligible for discount that Feltl failed to apply. The firm’s customers were excessively charged approximately $261,873.00. FINRA found that Feltl’s conduct was violative of FINRA Rule 2010.
According to the AWC, sponsors of unit investment trusts (UITs) provide investors several methods to receive a sales charge discount pertaining to UIT purchases. The AWC stated that breakpoints are a common method, which is applied when investors increase the size of UIT investments. Another common method indicated in the AWC includes discounts that are applied when customers’ rollover or exchange funds into UIT investments.
The AWC further stated that Feltl lacked the appropriate supervisory procedures and systems to detect when UIT discounts would be applicable. Apparently, the firm did not have any formal or informal practices in this regard for detection of UIT switches and discounts applicable.
FINRA also found that the firm failed to have supervisory procedures associated with identification and potential prevention the unsuitable trading of UITs. The firm apparently relied upon its branch managers to identify awkward transactions via trade blotters. Yet, the firm acknowledged that an exception report that identified UIT trading on a short-term basis was flawed, was not relied upon by the firm, nor provided to branch managers for review.
The AWC stated that unsuitable UIT trading persisted without detection as a result of the firm’s inadequate supervisory practices. For example, between 2011 and 2013, a stockbroker LZ effected short-term UIT transactions in two customer accounts that FINRA found to be unsuitable.
Such customers had paid commissions of $65,000.00 in the aggregate, while incurring losses associated with the trades. FINRA found Feltl’s supervisory failures to be violative of FINRA Rules 2010 and NASD Conduct Rules 3010(a) and (b).
This is not the first time that Feltl has been censured for supervisory failures. In December 2014, Feltl consented to a censure and fine of $225,000.00, in connection with supervisory failures pertaining to sales of inverse and leveraged exchange-traded funds. FINRA found Feltl to have violated FINRA Rules 2010 and 3010 in this regard. Additionally, the firm was found to have violated FINRA Rule 2010 and NASD Conduct Rule 2310 after FINRA found that unsuitable recommendations were made concerning the exchange traded funds products. The firm was ordered to provide restitution to affected customers.
Further, in September 2014, Feltl consented to a fine of $1,000.000.00 for varies supervisory failures occurring from 2008 through 2012 with respect to penny stock securities. FINRA found the firm to have violated Securities Exchange Act of 1934 Section 15(g), myriad of SEC rules, FINRA Rules 2010 and 3130, and NASD Conduct Rules 2110, 3010, 3110, and 3012.
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