Leveraged ETFs continue to be in regulators’ crosshairs.
The Financial Industry Regulatory Authority said Wednesday that it has fined Oppenheimer & Co. Inc. $2.25 million and ordered the firm to pay restitution of more than $716,000 to affected customers for selling leveraged, inverse and inverse-leveraged exchange-traded funds to retail customers without reasonable supervision, and for recommending these non-traditional ETFs that were not suitable.
FINRA notes that while Oppenheimer instituted policies in August 2009 prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs, and also prohibiting them from executing unsolicited non-traditional ETF purchases for retail customers unless the customers met certain criteria, e.g., the customer had liquid assets in excess of $500,000, the BD failed to “reasonably enforce these policies.”
Oppenheimer instituted the policies in August 2009, in response to FINRA Regulatory Notice 09-31, which advised broker-dealers of the risks and inherent complexities of certain non-traditional ETFs.
But because Oppenheimer failed to enforce the policies, its reps continued to solicit retail customers to purchase non-traditional ETFs and continued to execute unsolicited non-traditional ETF transactions even though the customers did not meet Oppenheimer’s stated criteria, FINRA states.
From August 2009 through September 2013, more than 760 Oppenheimer reps executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers.
“Written procedures are worthless unless accompanied by a program to enforce them,” said Brad Bennett, FINRA’s executive VP and Chief of Enforcement, in a statement. “While Oppenheimer’s procedures prohibited solicitation of non-traditional ETFs, the absence of any meaningful compliance effort resulted in its representatives continuing to solicit unsuitable non-traditional ETF purchases, including a number involving elderly investors.”