ProEquities Inc. a brokerage firm headquartered in Birmingham Alabama has been censured by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that it excessively charged customers who purchased mutual funds through the firm. Letter of Acceptance Waiver and Consent No. 2016052179401 (Mar. 7, 2019).
According to the AWC, a variety of mutual fund share classes, including Class A, B, C, and R shares, had been sold through the firm to investors including charitable organizations and retirement accounts. The share classes reportedly represented interests in the same securities portfolio but contained differences in their fees and structures. The AWC indicated that Class A shares contained front-end charges and a moderate distribution and service fee; Class B shares and Class C shares contained higher distribution and service fees but no front-end loads; and Class R shares contained higher fees than Class A shares but no front-end loads. FINRA stated that there would be no reason for an investor to purchase other share classes when the investor was able to buy a Class A share without a front-end load; and it was possible for an investor to avoid paying the front-end load through a sales charge waiver.
The AWC revealed that ProEquities offered mutual funds containing sales charge waivers, and those waivers were identified in the fund prospectuses. Even though these waivers were available, the firm evidently failed to process them for purchases. Instead, investors were reportedly sold Class A shares containing the front-end loads, or sold other share classes containing higher expenses and fees; some containing back-end sales charges. Not surprisingly, investors were disadvantaged by ProEquities because of paying more in fees than what they were supposed to be paying.
The AWC revealed that there was no reasonable supervision by the firm concerning sales charge waiver application on certain mutual fund transactions. Evidently, the onus was placed on financial advisors for identifying which waivers applied, if any. Yet, those advisors were reportedly untrained or unassisted by the firm in making these determinations. Evidently, there were no procedures used by the firm calling for the review of prospectuses for sales charge waivers when customers made purchases. The AWC additionally revealed that financial advisors were not appropriately informed and educated about waivers that were available for customers. In addition, there were reportedly no controls used by the firm for identifying when sales charges waivers had not been processed.
Moreover, the AWC stated that the firm notified FINRA in October of 2015 about its plan to assess sales charge waivers. The firm revealed that from January 2011 to March of 2016, mutual fund transactions were placed in three hundred fifty accounts wherein sales charge waivers were available but unprocessed. This reportedly resulted in the firm overcharging customers $136,660.00 on those transactions.
FINRA found ProEquities lacked appropriate supervision of mutual fund sales to make sure eligible customers received the appropriate waivers. Consequently, FINRA found the firm’s conduct violative of FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Conduct Rule 3010.
This is not the first time that ProEquities has been censured by FINRA for overcharging investors. Particularly, the firm was censured and fined $165,000.00 by FINRA based upon findings that it did not apply certain sales charge discounts on unit investment trust purchases made by customers. Letter of Acceptance, Waiver and Consent No. 2014041841001 (Nov. 2015). According to the AWC, the firm neglected to supervise its unit investment trust transactions to make sure appropriate discounts were applied on purchases. FINRA found the firm’s supervisory failures violative of FINRA Rules 2010 and NASD Conduct Rule 3010.
