Huntleigh Securities Corporation is a brokerage firm headquartered in St. Louis Missouri who has been censured by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm overcharged customers on unit investment trust transactions and failed to supervise the application of sales charge discounts in customer accounts. Letter of Acceptance Waiver and Consent No. 2015043587602 (Jan. 26 2018).
According to the AWC, from May 1, 2010 to April 30, 2015, the firm did not properly detect and apply the sales-charge discounts that customers that were eligible for those discounts by way of investing in the unit investment trusts. Apparently, two-hundred fourteen unit investment trust purchases were placed in customer accounts where no sales-charge discount had been applied, causing customers to collectively pay $47,591.00 more than they were required. FINRA found that the firm’s conduct in that regard was violative of FINRA Rule 2010.
The AWC further detailed that from May 1, 2010 to April 30, 2015, the firm did not create or implement supervisory procedures and systems that were adequately equipped to make sure that sales-charge discounts were provided to eligible unit investment trust customers. Apparently, the firm lacked any procedure or system to make sure that they applied the sales-charge discounts because they depended on those applicable discounts to be determined and applied by its clearing firm. Consequently, FINRA found the firm’s conduct violative of FINRA Rules 2010 and 3110, as well as NASD Conduct Rule 3010.
Moreover, FINRA stated that from January of 2011 to February of 2015, the firm failed to supervise the suitability of unit investment trusts and mutual fund transactions placed by the firm’s staff. Evidently, the firm failed to create and implement a sufficient set of supervisory procedures and a supervision system to protect against unsuitable short-term mutual fund and unit investment trust trading in customer accounts.
The AWC stated that the firm lacked any specific protocol for identifying when churning, excessive trading, or mutual-fund switches were executed, and the supervisory procedures in place did not even specifically encompass unit investment trust transactions. The firm reportedly failed to adequately instruct or train the firm about the length of time in which unit investment trusts were meant to be held.
According to the AWC, the firm also had a poorly designed system for identifying when unit investment trust rollovers were executed prematurely. Evidently, from 2011 to 2015, the firm supervised mutual fund and unit investment trust activity in a similar manner to supervising other securities; however, that system was not configured to identify when unit investment trust and mutual fund sales took place inside of three months from the purchase of those securities, which caused the firm to identify much less instances of trades that were unsuitable for customers. Apparently, the unsuitable transactions could have been detected by the firm’s compliance reports; however, the firm did not assess whether mutual funds or unit investment trusts were held improperly as vehicles to conduct short-term trading.
The AWC stated that the firm’s inadequate supervision of short-term unit investment trust trading and mutual fund switching caused the misconduct to continue unmonitored. Consequently, one of the firm’s stockbrokers made unsuitable investment recommendations to customers relating to a short-term unit investment trust and mutual fund switching strategy, which led them to collectively overpay $98,252.33 in sales charges from 2011 to 2015. Consequently, FINRA found that the firm’s supervisory failures were violative of FINRA Rules 2010 and 3110, as well as NASD Conduct Rule 3010.
This is not the first time that Huntleigh was reprimanded by FINRA for misconduct. Particularly, the firm was censured and fined twenty thousand dollars by FINRA based upon the firm’s consent to findings that it failed to appropriately supervise the firm’s inverse, leveraged, and leveraged exchange traded funds effected in customer accounts; the firm’s conduct was found by FINRA to be violative of FINRA Rules 2010 and NASD Rule 3010. Letter of Acceptance, Waiver and Consent, No. 2013035278601 (Sept. 4, 2014).
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