Cambridge Says It's Under FINRA Review, Plans $500,000 Restitution
The firm's procedures for providing fee waivers, rebates and discounts through rights of reinstatement are under scrutiny.
Cambridge Investment Research says it’s under review by the Financial Industry Regulatory Authority examination staff and expects to make a $500,000 restitution payment in 2024 to certain clients.
The FINRA staff is reviewing Cambridge’s procedures for providing customers with fee waivers, rebates and discounts when available through so-called rights of reinstatement. In connection with this review, the company voluntarily decided to reimburse clients to whom these rights were not honored, the company disclosed in its 2023 Focus report, filed Feb. 27.
FINRA continues to review this matter and the company expects that the review will extend further than it had anticipated, the broker-dealer says in the filing, noting that it accrued a liability in 2023 related to the anticipated $500,000 restitution payment.
SEC Case
March 1, 2022, the Securities and Exchange Commisison filed an enforcement action against Cambridge Investment Research Advisors Inc., the company’s RIA. It alleged that the RIA invested client assets in mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to the Cambridge BD, instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing.
That case is still pending, according to the firm’s Form ADV filed in late February.
A Cambridge senior vice president declined to comment on whether the FINRA and SEC cases were related. A FINRA spokesperson said the regulator does not comment on investigations or their existence.
Off-Channel Communications
In the same report, Cambridge said it accrued a $5.74 million liability in 2023 tied to the Securities and Exchange Commission’s review of its off-channel communication practices.
In a settlement announced Feb. 9, 2024, Cambridge, together with its RIA unit, agreed to pay a $10 million fine. The agreement covered 16 firms, who agreed to pay more than $81 million in total.
Regulators have hit big banks and other financial firms with more than $3 billion in total penalties to date over unauthorized use of text messaging and chat apps to conduct business.
– Melanie Waddell contributed reporting.
Photo: Adobe Stock