Firm Fined for Failing to Deliver ETF Prospectuses
Commentary by Steven Lofchie
A broker-dealer settled charges with FINRA for failing to deliver prospectuses in connection with the sale of shares in exchange-traded funds.
In a Letter of Acceptance, Waiver and Consent, FINRA said that, as a result of incorrect coding in the firm's internal systems, the firm did not deliver prospectuses to customers that required paper delivery. As a result, FINRA found that the broker-dealer violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"), as well as Section 5(b)(2) of the Securities Act ("Prohibitions relating to interstate commerce and the mails"), which requires prospectus delivery for the sale or delivery of securities.
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) pay a $400,000 fine. FINRA recognized the firm's "extraordinary co-operation" in self reporting, taking remedial steps and assisting FINRA in its investigation.
Commentary
Perhaps it is time to revisit the notion that there should be a presumption of the delivery of paper documents.