Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | UITs

Dec/10

7

Ryan Beck & Co, & Stifel Nicolaus & Co, Censured and Fined by FINRA

Comments off · Posted by admin in FINRA

It was stated on the FINRA website that the firms Ryan Beck & Co. (CRD #3248, Florham Park, New Jersey) nka Stifel Nicolaus & Company, Incorporated (CRD #793, St. Louis, Missouri) and Consent was censured, fined $100,000, agreed to provide remediation to customers who purchased unit investment trusts (UITs) and qualified for, but did not receive, the applicable sales charge discount, and will submit to FINRA a proposed plan of how it will identify and compensate customers and a schedule detailing the total dollar amount of restitution provided to each customer. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish an effective supervisory system and written supervisory procedures reasonably designed to ensure that discounts were correctly applied on eligible UIT purchases. The findings stated that the firm’s written supervisory procedures had limited information regarding UIT sales charge discounts, and omitted the fact that certain UIT sponsors permitted exchange discounts for purchases made with the proceeds from a UIT holding of another sponsor; this was particularly relevant because the firm’s UIT business was almost exclusively with UIT sponsors that provided this sales charge discount. 
 The FINRA findings also stated that the firm’s procedures lacked substantive guidelines, instructions, policies or steps for brokers, trading personnel or supervisors to follow to determine if a customer’s UIT purchase qualified for, and received, a sales charge discount. The findings also included that the broker and firm compensation diminished when the customer received a sales charge discount and, because of this, the firm needed to be particularly diligent in providing guidance to brokers, supervisors and trading personnel on UIT sales charge discounts.

It was noted that FINRA found that the firm failed to provide eligible customers with appropriate discounts on both UIT rollover and breakpoint purchases. FINRA also found that the firm failed to identify and appropriately apply sales charge discounts in certain top-selling UITs and, as a result, the firm overcharged customers in the sample approximately $20,000. FINRA also determined that the firm sold UITs that imposed a deferred sales charge that was generally charged upon redemption if a customer sold a UIT before the deferred sales charges were imposed. Moreover, FINRA found that the firm failed to ensure that its customers’ UIT purchase confirmations included the required language stating that “on selling your shares, you may pay a sales charge. For the charge and other fees, see the prospectus.”

 Additionally, FINRA found that the firm misstated on certain UIT confirmations that a sales charge discount had been applied when, in fact, it had not. 

(FINRA Case #2008015700901)

This information was obtained from FINRA’s website.

If you feel you have been a victim of these alleged fraudulent schemes of  Ryan Beck & Co., or Stifel Nicolause & Co., call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Aug/10

18

FINRA Announces Merrill Lynch to Pay More Than $2.5 Million Related to UIT Sales Charge Discount Failures

Comments off · Posted by admin in FINRA

WASHINGTON — It was announced today that the Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch $500,000 for failing to provide sales charge discounts to customers on eligible purchases of Unit Investment Trusts (UITs). FINRA also found that Merrill Lynch failed to have an adequate supervisory system in place to ensure customers received appropriate UIT discounts. The firm also agreed to provide remediation of more than $2 million to affected customers.

 ”Firms have been on notice since at least 2004 that they must develop and implement procedures to ensure customers receive appropriate sales charge discounts for UIT investments,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “In this case, it was critical for the firm to ensure that its brokers were diligent in providing sales charge discounts to which customers were entitled. This failure resulted in increased investment costs to Merrill’s customers.”

 A UIT is a type of investment company that offers redeemable units, of a generally fixed portfolio of securities, that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as “breakpoint discounts” and “rollover and exchange discounts.”

A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase – the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units).

 A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.

 It was noted that on March 31, 2004, FINRA issued a Regulatory Notice to firms titled, Unit Investment Trust Sales. The Notice reminds broker-dealers that they should develop and implement procedures to ensure customers receive appropriate sales charge discounts for UITs.

Also, prior to May 2008, however, Merrill Lynch’s written supervisory procedures had little to no information or guidance regarding UIT sales charge discounts. Even after the firm established procedures addressing UIT sales charge discounts, the procedures were inaccurate and conflicting.

 Merrill Lynch also approved for distribution, and for use in client presentations, inaccurate and misleading UIT sales literature. The presentation discussed sales charge discounts, but led clients to believe that they were only entitled to a discount if they used UIT proceeds to purchase a new UIT offered by the same sponsor.

Merrill Lynch’s procedures lacked substantive guidelines, instructions, policies or steps for brokers or their supervisors to follow to determine if a customer’s UIT purchase qualified for and received a sales charge discount. As a result of its defective procedures, between October 2006 and June 2008, the firm failed to appropriately apply discounts on rollover and breakpoint purchases resulting in customers being overcharged on their UIT purchases.

 As part of the settlement, Merrill Lynch is providing restitution to all customers who were overcharged when purchasing UITs through the firm, from January 2006 to the present. Merrill Lynch settled this matter without admitting or denying the allegations, but consented to the entry of FINRA’s findings.

This information was obtained from FINRA’s website.

If you feel you have become a victim of the alleged overpricing of Merrill Lynch’s UITs, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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