Securities Law Prof Blog

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

Thursday, July 22, 2010

FINRA Fines Sun Trust for Unsuitable UIT, CEF and Mutual Fund Transactions

FINRA has ordered SunTrust Investment Services, Inc. of Atlanta, GA, to pay $1.44 million to resolve charges related to unsuitable unit investment trust (UIT), closed-end fund (CEF) and mutual fund transactions. Of that amount, $900,000 is a fine that includes nearly $224,000 in disgorgement of commissions earned on the unsuitable trades. The remaining $540,000 represents restitution to 17 customers who incurred losses.  As part of this settlement, SunTrust must also review all UIT purchases and provide remediation to all eligible customers who did not receive the maximum sales charge discount. 

FINRA found that SunTrust, through two brokers in the firm's Maryland Region, engaged in a pattern of unsuitable short-term UIT, CEF and mutual fund transactions in accounts of 17 customers, most of whom were elderly and/or disabled. The brokers also engaged in unsuitable margin transactions in the accounts of 10 of the 17 customers. In addition, FINRA found that SunTrust failed to ensure that eligible customers received the maximum sales charge discount on UIT purchases and lacked adequate systems and procedures for monitoring and supervising UIT, CEF and margin transactions.

FINRA previously sanctioned one of the individual brokers involved in this matter, David Bredenburg of Timonium, MD, permanently barring him from working in the securities industry. FINRA has filed a complaint against the second broker, charging him with numerous violations, including unsuitable recommendations, sales and use of margin; failure to provide maximum sales charge discounts on UIT transactions; and engaging in discretionary trading in customer accounts without written authorization. FINRA also suspended the two brokers' former supervisor, Donald Mattran of Bel Air, MD, for six months in any principal capacity and fined him $10,000.

 FINRA also found that SunTrust lacked adequate systems and procedures to monitor UIT and CEF transactions and margin accounts, and to ensure that customers purchasing UITs received applicable sales charge discounts.

In concluding these settlements, SunTrust, Bredenburg and Mattran neither admitted nor denied the charges, but consented to the entry of FINRA's findings. FINRA's charges against the second broker alleged to be involved are pending

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