Legend Equities Corporation, a brokerage firm headquartered in Delaware, was censured by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm took advantage of charitable entities and retirement plan customers by overcharging them in mutual fund transactions. Letter of Acceptance, Waiver and Consent, No. 2016050259801 (Apr. 4, 2017).
According to the AWC, class A shares were offered to customers through Legend Securities Corporation, in which the shares typically contained front-end loads; however, the shares often contained waivers if sold to retirement plan customers as well as charitable entities. Apparently, from July 1, 2009 to January 1, 2017, Legend Securities Corporation failed to apply these waivers of sales charges to eligible customers; but rather, sold the customers class a shares with front-end loads or other share classes containing greater costs.
The AWC further stated that from July 1, 2009 to January 1, 2017, the firm inadequately supervised the process concerning applicability of sales charge waivers for eligible customers. The firm evidently tasked financial advisors with the responsibility to determine whether sales charges waivers applied in customers’ cases. The AWC noted that the firm had no reasonable process for assisting the financial advisors in making sales charge waiver terminations. Further, the firm reportedly lacked a supervisory process for identifying whether the funds’ prospectuses outlined sales charge waiver applicability. Moreover, financial advisors were reportedly deprived of notification or firm trainings regarding the sales charge waiver determinations. Additionally, the firm did not set forth adequate methods to identify when customers had not received sales charge waivers when eligible for them.
Evidently, Legend Equities Corporation notified FINRA that an estimated 4,160 customer accounts contained purchases of mutual funds where no waiver of sales charges was applied. Evidently, customers overpaid approximately $2,080,690.00 since July 1, 2009, based on the firm’s failure to apply the waivers. Consequently, FINRA found the firm’s conduct in this regard to be violative of FINRA Rule 2010, 3110, as well as NASD Conduct Rule 3010. FINRA ordered the firm to provide an estimated $2,300,188.00 in restitution to affected customers.
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