Oppenheimer & Co. has been ordered to pay $3.8 million in restitution to customers who paid excessive sales charges on some transactions, the Financial Industry Regulatory Administration announced Monday.
Finra also announced it fined the brokerage firm $800,000 for failing to reasonably supervise the transactions.
The transactions involved unit investment trusts (UITs). A UIT is an investment company that offers investors shares, or "units," in a fixed portfolio of securities. The units are offered through a one-time public offering that has a specific maturity date that's usually 15 months or 24 months. A registered representative who recommends that a customer sell his or her UIT position before the maturity date and then rolls those funds over into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns, Finra said.
Finra found that Oppenheimer did not properly supervise the sales and rollovers of many UIT accounts, resulting in excessive fees for clients.
From January 2011 through December 2015, Oppenheimer executed more than $6.4 billion in UIT transactions, with $753.9 million of them being early rollovers. But Oppenheimer’s supervisory system was not designed to properly check these sales. “As a result, Oppenheimer did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur more than $3.8 million in sales charges that they would not have incurred had they held the UITs until their maturity dates,” Finra said.
"Finra member firms must be mindful of costs to customers when recommending a product, particularly when recommending that customers make short-term sales of products that are intended as long-term investments,” said Jessica Hopper, senior vice president and acting head of Finra's Department of Enforcement,
Finra noted that Oppenheimer is extending “extraordinary cooperation” with the organization by retaining an outside consultant to analyze the firm's UIT trading and voluntarily sharing the results of the consultant's analysis with Finra, helping to identify customers who might be eligible for compensation and implementing procedures to prevent further occurrences.