J.P. Turner & Company L.L.C., a broker-dealer based in Atlanta, Ga., has been ordered by Finra to pay $707,559 in restitution to 84 customers for sales of unsuitable leveraged and inverse ETFs and for excessive mutual fund switches, Finra announced Friday.
Finra found that J.P. Turner failed to establish and maintain a reasonable supervisory system and instead, supervised leveraged and inverse ETFs in the same manner that it supervised traditional ETFs. The firm also failed to provide adequate training regarding these ETFs, Finra says.
The firm failed to determine whether the ETFs were suitable for at least 27 customers, including retirees and conservative customers, who sustained collective net losses of more than $200,000, the order says.
J.P. Turner also engaged in a pattern of unsuitable mutual fund switching, which generates high fees and commissions, according to Finra. The firm failed to maintain a reasonable supervisory system and lacked sufficient procedures to prevent unsuitable switching. Despite the presence of several red flags, J.P. Turner failed to reject any of the more than 2,800 mutual fund switches that appeared on the firm's switch exception reports, Finra says. As a result, 66 customers paid commissions and sales charges of more than $500,000 in unsuitable mutual fund switches.
J.P. Turner consented to the order but neither admitted nor denied the charges.
"Securities firms and their registered reps must understand the complex products they are selling and the risks inherent to the products, and be able to determine if they are suitable for investors before recommending them to retail customers,” says Brad Bennett, Finra executive vice president and chief of enforcement. “Firms also have a fundamental obligation to monitor conservative investments such as mutual funds to ensure that investors are not abused by excessive trading."