Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, February 21, 2008

Oppenheimer Settles Market-Timing Charges with FINRA

FINRA announced today that Oppenheimer & Co. will pay a fine of $250,000 for supervisory and other failures in connection with improper market timing of mutual fund shares from January through September 2003. The firm will also pay $4.25 million in restitution to more than 60 mutual fund companies.

FINRA found that Oppenheimer failed to prevent a group of five traders' improper, short-term trading of mutual funds on behalf of hedge fund customers - activity that yielded about $9 million in gross revenue for the firm. Oppenheimer also failed to establish, maintain or enforce supervisory systems and written procedures to detect and prevent improper market timing activities, or to maintain required books and records of the short-term trading of mutual funds through other firms' trading platforms.  During the relevant period, the group maintained about 580 accounts for 15 hedge fund customers in an attempt to circumvent market timing trading blocks put in place by the mutual funds.

FINRA also found that the group used 51 different registered representative numbers to create the appearance that the trades were coming from registered representatives who had not previously been blocked from trading.

FINRA further found that the group sold variable annuity contracts to its hedge fund clients to allow them to use the annuity sub-accounts as yet another vehicle for market timing mutual funds. During the relevant period, the group - with the approval of at least some senior managers - purchased 159 variable annuity contracts on behalf of their hedge fund clients. Oppenheimer settled this action without admitting or denying the charges, but consented to the entry of FINRA's findings.

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