The Financial Industry Regulatory Authority (FINRA) announced Tuesday that it has sanctioned Citigroup Global Markets Inc, Morgan Stanley & Co., UBS Financial Services and Wells Fargo Advisors a total of more than $9.1 million for selling leveraged and inverse exchange-traded funds (ETFs) without reasonable supervision and for not having a reasonable basis for recommending the securities.
The firms were fined more than $7.3 million and are required to pay a total of $1.8 million in restitution to certain customers who made unsuitable leveraged and inverse ETF purchases, FINRA said.
The breakdown of the FINRA sanctions are as follows:
- Wells Fargo– $2.1 million fine and $641,489 in restitution
- Citigroup– $2 million fine and $146,431 in restitution
- Morgan Stanley– $1.75 million fine and $604,584 in restitution
- UBS– $1.5 million fine and $431,488 in restitution
The firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
“The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficiently train their sales force before the products are offered to retail customers,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”
ETFs are typically registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index.