Cambridge Fined $200K for Failing to Quash UIT Trading

Cambridge, according to the order, failed to reasonably respond to red flags that the rep "was repeatedly recommending that customers sell UITs prior to maturity."

Cambridge of Fairfield, Iowa, provides securities brokerage, wealth management and investment banking services. The firm has roughly 4,900 registered reps and about 2,800 branch offices.

FINRA investigated the matter after reviewing the Form U5 filed by Cambridge on March 17, 2023, disclosing that the rep was terminated for "[e]xcessive use of UIT products."

To supervise early UIT redemptions, "Cambridge relied on an automated system that flagged every sale of a UIT followed by the purchase of another UIT within a set period of time, i.e., early UIT rollovers," FINRA's order explains.

From January 2020, when the rep joined Cambridge, through February 2023, when he was terminated, his recommendations "generated approximately 60% of all trade alerts for early UIT rollovers across the entire firm, even though the representative's recommendations accounted for approximately 10% of the firm's total UIT business," the order states.

During the time period, Cambridge failed to reasonably supervise the rep's recommendations for compliance with Reg BI's care obligation.

"Starting in June 2020, supervisory personnel repeatedly escalated concerns regarding not only the volume of alerts generated by the representative's UIT recommendations to retail customers, but also the vague rationales he provided to justify those recommendations," the order states.

Separately, as early as May 2021, "compliance personnel responsible for reviewing alerts for patterns of potential misconduct raised concerns regarding the representative's patterns of early UIT redemptions, particularly his pattern of selling UITs significantly before their maturity dates," the order continues.

Despite these red flags, Cambridge did not reasonably investigate the rep's UIT recommendations.

The supervisors did not question the rep's "stated reasons for selling UITs before maturity, nor did they reasonably evaluate the additional costs customers incurred as a result of these early UIT redemptions," according to FINRA.

In January 2023, compliance personnel "directly escalated concerns to the firm's senior compliance leadership, which prompted the firm to conduct a reasonable investigation and terminate the representative in February 2023."

During the time he was associated with Cambridge, the rep recommended that his retail clients sell UITs after holding them, on average, for only 56% of their term lengths.

Moreover, the rep's customers sold 90% of their UIT positions before maturity, and they typically rolled the proceeds from these sales into new UIT positions, according to the order.

"Collectively, these recommendations caused 184 customers to pay at least $389,200.62 in costs and fees during the relevant period that they would not have incurred had they held the UITs until their maturity dates," the order said.

Cambridge accepted and consented to FINRA's findings without admitting or denying them. The firm did not respond to a request for comment as of publication time.