Broker-Dealer Settles FINRA Charges for Unsuitable Recommendations

A broker-dealer settled FINRA charges for supervision failures related to unsuitable recommendations involving variable interest rate structured products ("VRSPs").

FINRA found that three of the broker-dealer's registered representatives made unsuitable recommendations to customers on their purchase of VRSPs, despite the investor's low to moderate risk tolerances or investment objectives. FINRA stated that the recommendations were made contrary to the broker-dealer's policies restricting VRSP recommendations to customers with higher than moderate risk tolerances. FINRA stated that the broker-dealer's policies required additional customer disclosures for customers with aggressive investment objectives. FINRA noted that the three representatives failed to provide such risk disclosures or to confirm their risk tolerances.

FINRA found that several of the firm's representatives recommended investment strategies with concentrations of VRSPs in excess of 40 percent, despite the firm's supervisory system generating automated alerts. FINRA also said that the broker-dealer failed to take any steps to prevent additional VRSP recommendations to accounts that were already highly concentrated in these high-risk investments.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $150,000 and (iii) restitution of $185,215 plus interest.