Broker-Dealer Settles FINRA Charges for Unsuitable Unit Investment Trust Exchanges

A broker-dealer agreed to settle FINRA charges for recommending unsuitable Unit Investment Trust ("UIT") exchanges and failing to have a sufficient supervisory system.

According to the Letter of Acceptance, Waiver and Consent, certain Hennion & Walsh, Inc. ("HW") registered representatives recommended 645 unsuitable series-to-series switches between similar UITs that had similar investment objectives. FINRA stated that, as a result of the series-to-series switches, customers incurred sales charges of over $300,000.

FINRA alleged that HW neglected to establish and maintain an adequate system to supervise series-to-series UIT switches. In particular, FINRA said that HW did not give reasonable guidance to its sales staff on the "suitability concerns raised by early series-to-series switches," particularly with respect to considering the impact of sales charges in relation to the possible benefits of the switches. Further, the principal at HW did not receive training on how to assess series-to-series switches and failed to take into consideration the increased costs affiliated with an early exchange.

To settle the charges, HW agreed to a censure, to pay a fine of $165,000, and to pay restitution of approximately $300,000.