Broker-Dealer Settles FINRA Charges for Suitability and Supervisory Violations

A broker-dealer and a former representative settled FINRA charges for suitability and supervisory failings concerning recommendations involving Unit Investment Trusts ("UITs") and preferred stock of a real estate investment trust.

FINRA stated that the broker-dealer failed to supervise a former representative who caused his customers to incur $300,000 of unnecessary, additional expenses, which resulted in a direct benefit to the broker-dealer and its former representative. FINRA said that the customer incurred additional expenses as a result of recommendations using the "standard version" UITs, despite the availability of lower cost fee-based UITs. In addition, FINRA stated that the representative caused customers to pay selling commissions by recommending preferred stock of a real estate investment trust and non-traded business development company, which would not have been incurred had the purchases been made through an affiliated advisory entity. As a result, FINRA found that the representative violated FINRA Rules 2111 ("Suitability") and 2010 ("Standards of Commercial Honor and Principles of Trade"), while the broker-dealer was found to have violated FINRA Rules 3110 ("Supervision") and 2010.

To settle the charges, the broker-dealer agreed to a (i) censure and (ii) $50,000 fine. The former representative agreed to a (i) $15,000 fine and (iii) six-month suspension. In addition, the broker-dealer and the representative agreed to pay $388,962.13 in restitution, to be paid jointly and severally.