Sign of the Financial Industry Regulatory Authority

SagePoint Financial a securities broker dealer headquartered in Phoenix Arizona has been censured and fined $300,000.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that it failed to supervise short-term trades of unit investment trusts with a view towards ensuring the suitability of those transactions for customers. Letter of Acceptance Waiver and Consent No. 2018056858101 (June 10, 2020).

According to the AWC, between January of 2013 and December of 2017, SagePoint neglected to create and implement a supervision system and written supervisory procedures aimed at monitoring its stockbrokers’ recommendations of early rollovers of UITs. The AWC stated that $895,000,000.00 in UIT sales were generated throughout this period. $203,700,000.00 of the $895,000,000.00 in proceeds came by way of early rollovers wherein UITS had been sold at least three months prior to maturity only for some or all of those proceeds to be used for purchasing more UITs. FINRA also pointed out that $85,800,000.00 of the $895,000,000.00 in proceeds involved series-to-series early rollovers wherein proceeds from an early liquidation had been used to buy a newer series of the UITs.

FINRA stated that the written supervisory procedures used by SagePoint were silent on early rollovers or series-to-series rollovers – transactions which FINRA indicated could be unsuitable because of the long-term nature of these UITs as well as the hefty transaction costs. There was no guidance SagePoint provided to supervisors in regard to the manner in which they could uncover patterns of possible inappropriate transactions.

SagePoint failed to use alerts or automated reports to monitor for possibly unsuitable early rollovers. The AWC stated that UIT transactions were not set up to address suitability issues pertaining to the early rollovers. This led SagePoint to overlook transactions recommended by its stockbrokers which generated at least $1,315,373.01 in sales charges that customers would not have been required to pay if their UITs had been held until maturities. FINRA determined that the securities broker dealer’s supervisory failures constituted the violation of FINRA Rules 2010 and 3110 as well as National Association of Securities Dealers (NASD) Rule 3010.

This marks the fourteenth time in which SagePoint Financial has faced a disciplinary action for its alleged mishaps in the securities industry.