Investors Capital Corp. in Lynnfield, Mass., agreed to pay $1.1 million to settle Finra charges that it recommended unsuitable short-term trades in complex products to clients.
Finra's complaint against the Cetera Financial Group subsidiary revolved around recommendations for unsuitable investment trusts and steepener notes in the accounts of 74 clients.
Two Investors Capital representatives recommended short-term unit investment trust transactions with upfront sales charges ranging from 250 to 350 basis points in the customers’ accounts, according to a Finra letter of acceptance released on Monday.
Finra also charged that Investors Capital lacked adequate supervisory policies and that the representatives’ behavior went unchecked from June 2010 to September 2015.
The clients involved in unsuitable UIT trading lost more than $240,000, according to Finra.
Finra notes that one 58-year-old client with a long-term growth account objective purchased and sold nearly 65 of the unit investment trusts, almost all of which had two-year maturity dates, in a 2.5 year period with an average holding period of three months. On at least 58 occasions, proceeds of the sale of one unit investment trust in this client’s account were used to purchase another, resulting in a loss of $50,728 in that client’s account.
Between April 2011 and December 2012, FINRA alleges that Investors Capital representatives also recommended short-term trades of “steepener” notes, which are long-term bets on the shape of the yield curve, in an unsuitable manner. The recommendations led to 63 customers suffering about $126,000 in losses.
Cetera is closing Investors Capital and moving its advisory workforce to another subsidiary.
Investors Capital agreed to pay $842,000 in restitution to clients and a $250,000 Finra penalty, on top of more than $200,000 in restitution that it has already paid to clients, according to Finra. The firm also consented to be censured.
Investors Capital neither admitted nor denied Finra's findings.