Monday, March 23, 2009
FINRA announced that it fined 25 broker-dealers a total of $2,145,000 for failures related to their completion of FINRA's (then NASD's) firm self-assessment of mutual fund breakpoint discount compliance. All firms settled the charges without admitting liability.
The self-assessment required firms that sold front-end load mutual funds to review their compliance in providing breakpoint discounts to customers during 2001 and 2002 and report those results to FINRA. Breakpoint discounts are volume discounts applicable to front-end sales charges (front-end loads) on Class A mutual fund shares. The self-assessment followed findings by NASD, the NYSE and the Securities and Exchange Commission that nearly one in three mutual fund transactions that appeared eligible for a breakpoint discount did not receive one.
The findings made in today's settlements result from FINRA's review of firms' compliance with the self-assessment requirements. The violations include failing to accurately report information; failing to send timely notices and responses to customers concerning the availability of breakpoint discounts; failing to provide timely refunds for missed breakpoints to customers; and failing to correctly calculate such refunds.
In addition, FINRA found that three firms — Fox & Company Investments, Inc., First Midwest Securities, Inc. and Chase Investment Services, Corp. — failed to deliver breakpoint discounts during a later review period and continued to fail to have reasonable written supervisory procedures in place to assure that appropriate breakpoint discounts would be delivered to their customers during that later period.
In its review, FINRA found that 14 firms — J.J.B. Hilliard, W.L. Lyons Inc., New England Securities, SunAmerica Securities, Inc., Multi-Financial Securities Corporation, H. Beck, Inc., Leonard & Company, Fox & Company Investments, Inc., Investors Capital Corp., vFinance Investments, Inc., FSC Securities Corporation, National Securities Corporation, Advantage Capital Corporation, Steven L. Falk & Associates, Inc. and Securities America, Inc. — failed to accurately and/or fully complete their self-assessments.
FINRA further found that six of the firms — Multi-Financial Securities Corporation, Intersecurities Inc., SWS Financial Services, Spelman & Co. Inc., Securities America, Inc., and SIGMA Financial Corporation — failed to accurately complete a comprehensive trade-by-trade review of transactions. The trade-by-trade review was a required part of their customer remediation process following the self-assessment.
Six firms — ProEquities, Inc., FSC Securities Corporation, Lincoln Investment Planning, Inc., New England Securities, Gary Goldberg & Co., Inc., and Leonard & Company — failed to provide timely refunds of breakpoint discounts to their customers. In addition, five firms — Leonard & Company, Gary Goldberg & Co., Inc., Financial West Group, GunnAllen Financial, Inc. and ProEquities, Inc. — failed to notify their customers on a timely basis — or failed to notify them at all — of the potential for reimbursement for missed breakpoint discounts. In addition, GunnAllen and ProEquities did not timely respond to customer inquiries about breakpoint discounts.