Oppenheimer & Co. has agreed to pay the Financial Industry Regulatory Authority $250,000 for misidentifying collateralized mortgage obligations in customer accounts as government bonds.
From at least January 2006 to the present, Oppenheimer sent an estimated 167,000 account statements to more than 800 customers that misidentified CMOs issued by private entities as government agency bonds or corporate bonds, according to FINRA's order, signed May 4.
During the same period, Oppenheimer, an independent investment bank and broker-dealer with 190 branches and more than 1,900 registered representatives, failed to reasonably supervise the content of account statements that it sent to customers.
"Oppenheimer generated and sent to customers account statements that categorized the holdings in the customers' accounts under various headings, including 'Common Stock,' 'Fixed Income,' and 'Mutual Funds,'" the order states.
From at least January 2006 through January 2024, "Oppenheimer generated and sent an estimated 150,000 account statements to more than 800 customers that miscategorized all private label CMOs in each customer's account under the heading 'Government Agency Bonds," the order continues.
This classification was inaccurate and misleading because it suggested that the CMOs were guaranteed by the U.S. government or a government-sponsored entity, the regulator states.
After being advised by FINRA of the inaccuracies, Oppenheimer made an effort to address the issue by changing the categorization of private label CMOs in customer account statements from "Government Agency Bonds" to "Corporate Bonds."
Since January 2024, "the firm has sent an estimated 17,000 account statements to customers that categorized private label CMOs as corporate bonds," FINRA said.
However, this characterization was inaccurate because private label CMOs differ from corporate bonds in several respects.
"For example, unlike corporate bonds, which are debt obligations of corporations subject to default risk, CMOs are backed by pools of mortgages with varying maturities and prepayment risks (i.e., risk of repayment of principal prior to maturity)," FINRA states.
From January 2006 to the present, Oppenheimer did not have a reasonable system to supervise the accuracy of information presented in customer account statements, the order continues, because it failed to review whether customer holdings were accurately categorized.
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