Oppenheimer fined for unsuitable sales

Must pay $2.25M penalty plus $716,000 in restitution

Broker-dealer Oppenheimer & Co. has been fined $2.25 million for selling non-traditional exchange-traded funds to retail customers without reasonable supervision and for recommending the investments to clients for whom they were unsuitable, Wall Street’s self-regulator said Wednesday.

New York-based Oppenheimer was also ordered to pay $716,000 in restitution to customers who lost money on the investments, the Financial Industry Regulatory Authority said.

Since 2009, Oppenheimer had rules that barred its representatives from soliciting retail customers to buy the investments, which include leveraged, inverse and inverse-leveraged exchangetraded funds, FINRA said. The company rules also barred representatives from executing unsolicited purchases of the funds for retail investors unless the customers had more than $500,000 in liquid assets.

However, Oppenheimer representatives continued to solicit retail customers for the investments and also executed unsolicited transactions for customers who did not meet the asset requirement, FINRA said.

Non-traditional exchangetraded funds are designed to return a multiple of an underlying financial index or benchmark, the inverse of that benchmark, or both, over the course of one trading session, usually a single day, according to a settlement that Oppenheimer reached with FINRA.

As a result, the longer-term performance of the investments can differ significantly from their underlying index or benchmark. For that reason, the investments may not be suitable for retail customers.

FINRA said Oppenheimer representatives executed more than 30,000 non-traditional exchangetraded fund transactions totaling roughly $1.7 billion for customers from August 2009 through Sept. 20, 2013.

According to the regulator, some conservative investment clients lost money:

89-year-old customer whose annual income was $50,000 held 96 of the investments for an average of 32 days, resulting in a $51,847 net loss.

91-year-old client with an annual income of $30,000 held 56 of the investments for an average of 48 days, producing a net loss of $11,161. 67-year-old customer whose annual income was $40,000 held two of the investments in her account for 729 days, resulting in a $2,746 net loss.

Oppenheimer neither admitted nor denied the charges but consented to entry of the FINRA findings.

“Written procedures are worthless unless accompanied by a program to enforce them,” said Brad Bennett, FINRA’s enforcement chief.

“While Oppenheimer’s procedures prohibited solicitation of non-traditional ETFs, the absence of any meaningful compliance effort resulted in its representatives continuing to solicit unsuitable non-traditional ETF purchases, including a number involving elderly investors.”