FINRA Fines Chase $1.7 Million, Orders Customer Reimbursement

Two of the UITs on Chase’s list of approved products held a large percentage of assets in closed-end funds that contained a significant percentage of high-yield or junk bonds and thus were unsuitable for inexperienced customers with low risk tolerance. Chase brokers made almost 260 unsuitable recommendations to purchase these UITs to customers, who suffered losses of approximately $1.4 million as a result.

Similarly, the floating-rate loan funds were subject to significant credit risks and certain of the funds could also be illiquid, and therefore were unsuitable for conservative investors and those seeking capital preservation. Despite this, Chase brokers recommended them, resulting in unreimbursed losses of nearly $500,000.

FINRA’s findings also include that WaMu Investments Inc., which merged with Chase in July 2009, made recommendations to customers to purchase floating-rate loan funds that were not suitable for them, and that WaMu failed to provide adequate training and failed to reasonably supervise the sale of floating-rate loan funds to customers.

Brad Bennett, FINRA executive vice president and chief of enforcement, said, “With the growing number of complex products in the market today, it is incumbent upon firms to properly train and provide guidance to their brokers about the products that they sell and supervise the sales practices of their brokers. Chase allowed its brokers to sell risky UITs and floating-rate loan funds without providing them with the training, guidance and supervision necessary to determine whether these products were suitable for their customers, which resulted in losses for Chase’s customers.”