Oppenheimer & Co., Inc., headquartered in New York, New York, was censured and fined $2,250,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm failed to properly supervise exchange traded funds. Letter of Acceptance, Waiver and Consent, No. 2012034556901 (June 7, 2016).
According to the AWC, from August 4, 2009 through September 30, 2013, Oppenheimer effected 30,740 non-traditional exchange traded fund transactions in the retail accounts of 1,713 customers. The transactions reportedly totaled an estimated $1,700,000,000.
The AWC stated the firm had not enforced its written supervisory procedures which prohibited non-traditional exchange traded funds being solicited to retail customers. Allegedly, the firm failed to train staff, including supervisors and stockbrokers, on such policies. The AWC stated that Oppenheimer additionally failed to stop its representatives as well as its trading desk from effecting the trades. Further, the firm reportedly failed to utilize proper supervisory reporting procedures to ascertain whether non-traditional exchange traded funds were being solicited to customers.
The AWC also stated that the firm’s failure to enforce its written supervisory procedures allowed for non-qualified customers to make purchase in non-traditional exchange trade funds. Oppenheimer apparently had pre-qualification measures that were set forth regarding ETF transactions, but did not utilize them in accordance with the firm’s policies.
The AWC mentioned that the firm also failed to monitor, in any effective manner, non-traditional exchange traded fund holding periods. FINRA noted that this failure was particularly important when considering that the non-traditional exchange traded funds contained risks that were associated with prolonged holding periods. The firm’s failure to monitor the holding periods in this regard apparently caused, in part, customer losses. FINRA found that the firm violated FINRA Rule 2010 and NASD Rule 3010 in this regard.
FINRA further noted that the firm’s representatives solicited, and helped effect purchases of, non-traditional exchange traded funds that were not actually suitable for certain investors. Specifically, a certain number of investors, several of those who were elderly, had conservative investment objectives. The AWC noted that some of these senior investors held the non-traditional exchange traded funds for pro-longed holding periods.
In one case, a conservative 91-year-old investor held 56 exchange traded funds for 48 days on average, leading the investor to bear a loss of $11,161.00. In another case, a conservative 89-year-old investor held the securities for 32 days on average, and suffered losses of $51,847.00.
FINRA found that the firm’s conduct regarding unsuitable transactions was violative of FINRA Rules 2111, 2010, and NASD Rule 2310. Oppenheimer, in addition to paying the fine of $2,250,000.00, was required to pay $716,831.80 in restitution to affected customers.
This is not the first time that Oppenheimer has been subject to disciplinary action for supervisory failures. On December 22, 2015, Oppenheimer was censured and fined $225,000.00 by FINRA after consenting to findings that the firm failed to create a legitimate supervisory system and written supervisory protocol concerning tax-exempt municipal bond short positions.
In another case, on May 16, 2013, Oppenheimer was censured and fined $1,425,000.00 by FINRA per an Order Accepting Offer of Settlement containing findings that the firm failed to utilize supervisory measures to comply with Securities Act of 1933 Section 5.
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