Broker-Dealer Settles FINRA Charges for Supervisory Failures over Sales of Mutual Fund Share Classes

A broker-dealer settled FINRA charges for supervisory failures over sales of higher fee mutual fund share classes.

According to the FINRA Letter of Acceptance, Waiver, and Consent, the broker-dealer allowed customers to purchase Class C mutual fund shares (which had higher fees) despite qualifying for Class A shares, which were available at a lower cost. FINRA determined that the broker-dealer's automated system applied a purchase limit on Class C shares that was often (i) inconsistent with the Class C share purchase limit set by the fund or (ii) inconsistent with the fund's threshold for when Class A shares were available with no front-end sales charges. As a result, FINRA found that "the firm failed to correctly identify and implement applicable limits on customers' Class C share purchases."

FINRA determined that the broker-dealer violated FINRA Rules 3110 (Supervision) and 2010 (Standards of Commercial Honor and Principles of Trade). The broker-dealer agreed to (i) a censure and (ii) full restitution plus interest, totaling approximately $15.2 million. The settlement took into consideration the broker's "extraordinary cooperation."