The Financial Industry Regulatory Authority (FINRA) announced today that five major brokerage firms have agreed to pay fines totaling $2.4 million for supervision violations and improper mutual fund sales to thousands of investors. These firms must take remedial steps to prevent such actions in the future and pay amounts estimated to exceed $25 million to their clients because of such practices.
According to FINRA, the violations include sales by these firms of load securities, meaning clients were required to pay commissions, when these investors were eligible to make fund exchanges without paying commissions. FINRA’s press release states that “Class B and Class C mutual fund shares and failure to have supervisory systems designed to provide all eligible investors with the opportunity to purchase Class A mutual fund shares at net asset value (NAV) through NAV transfer programs.”
Prudential Securities must pay an $800,000 fine, UBS Financial Services, Inc. was fined $750,000 and Pruco Securities was hit for $100,000 for improper sales of Class B and Class C mutual fund shares. These firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households. Merrill Lynch, Prudential Securities, UBS and Wells Fargo must take steps regarding customers who qualified for but did not receive the benefit of NAV transfer programs. It is estimated that total remediation to fhese firms’ customers will exceed $25 million.
FINRA also fined Prudential Securities, UBS, and Merrill Lynch $250,000 each for failure to reasonable supervise and offer opportunities for investors to obtain sales charge waivers through NAV transfer programs. As a result of inadequate supervisory systems FINRA found that customers of Merrill Lynch, Wells Fargo, UBS and Prudential Securities eligible for the NAV programs incurred front-end sales loads or purchased other share classes that unnecessarily subjected them to higher fees and sales charges.
FINRA found that Wells Fargo Investments failed to have reasonable supervisory systems and procedures relating to NAV transfer programs but did not impose a fine because the firm made changes before FINRA’s inquiry into the practices. FINRA said the firm had initiated a review of its mutual fund sales and acted promptly and in good faith to correct its system and procedures and had reimbursed its customers over $612,000.
“Firms have an obligation to consider all relevant factors when recommending mutual fund investments, to ensure that they recommend the share class that is most advantageous to the customer,” said Susan L. Merrill, Executive Vice President and Chief of Enforcement at FINRA. “The supervisory problems here led not only to the sales of inappropriate mutual fund share classes, but to the failure to identify special sales charge waiver programs on mutual fund purchases. We are pleased that through these settlements, millions of dollars will be returned to customers.”
The securities law firm of Shepherd, Smith, Edwards and Kantas LTD LLP has represented thousands of institutional and individual investors nationwide with substantial claims for losses caused by wrongdoing of stockbrokers and their firms. Contact us today if you, your firm or someone you know could be the victim to arrange a free, confidential conference with one of our securities attorneys.