FINRA Charges Oppenheimer & Co. for Multiple Compliance Failures

On November 17, 2016, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued a Letter of Acceptance, Waiver and Consent (“AWC”), in which Oppenheimer & Co., Inc. (“Oppenheimer”) agreed to settle numerous charges.  Pursuant to the AWC, Oppenheimer will be fined $1.575 million.  It will also be required to make remediation payments of $703,122 to seven arbitration claimants and $1,142,619 to customers who qualified for but did not receive applicable sales charge waivers pertaining to mutual funds.

Many of the violations related to FINRA Rule 4530. Rule 4530(f) requires FINRA members promptly to provide FINRA with copies of certain civil complaints and arbitration claims.  Rule 4530(b) provides that if a FINRA member realizes that it or an associated person has violated any securities or investment-related laws that have widespread or potential widespread impact to the firm, the member must notify FINRA.  The notification should take place within either 30 calendar days after the determination is made or 30 calendar days after it reasonably should have been made.

According to FINRA’s findings, Oppenheimer failed to file in excess of 350 of these required filings.  Moreover, FINRA found that when Oppenheimer did make the required filings, the disclosures were, on average, more than four years late.

FINRA also concluded that Oppenheimer’s procedures for making the disclosures required under Rule 4530 were insufficient.  For example, Oppenheimer did not have any procedures that would let its employees know when a Rule 4530 filing had to be made.  It also did not have a procedure that would have given its employees instructions on what process should be followed to complete a filing with FINRA.  Because of this, Oppenheimer’s employees lacked adequate guidance regarding their obligation to make Rule 4530 filings when needed.

In addition, FINRA determined that Oppenheimer neglected to update its Form U4 in a timely fashion as required by FINRA Rules 2010 and 1122.  These rules state that FINRA members must make filings for associated persons and file amendments no later than 30 days after the FINRA member becomes aware of the facts and circumstances that warrant the amendment.  Oppenheimer learned, in September 2013, that its Anti-Money-Laundering Compliance Officer and a branch-administrative manager received Wells notices from the SEC.  According to FINRA, this was an event that would require amendments to the Form U4 for both employees.  However, Oppenheimer did not make any amendments in response to the Wells notices until December 2014, more than one year after Oppenheimer learned about them.

The AWC also noted that Oppenheimer did not have supervisory procedures that would have provided its employees with sufficient guidance regarding reporting regulatory events.  Although Oppenheimer had updated its supervisory procedures in response to a prior FINRA investigation, these new supervisory procedures still did not address the firm’s duty to report regulatory events that involved employees.  Consequently, Oppenheimer’s employees were unsure of their responsibility to report regulatory events.

Another large component of FINRA’s charges against Oppenheimer involved Oppenheimer’s alleged failure to produce relevant documents in discovery in FINRA arbitration.  From 2010 to 2013, seven sets of customers filed arbitration claims against Oppenheimer, claiming it had failed to adequately supervise Mark Hotton, a registered representative.  Some spreadsheets that Oppenheimer’s Surveillance Group produced in 2007 and 2008 showed that Hotton had excessively traded multiple customer accounts.  The fact that the spreadsheets revealed this information showed that they would have been relevant in discovery related to the arbitration claims.  However, Oppenheimer did not produce the spreadsheets or some other documents that were responsive to the claimants’ requests.  Because of this, the arbitration claimants did not receive copies of responsive documents before their arbitration claims were resolved.

Finally, it was determined that Oppenheimer did not reasonably supervise the application of sales charge waivers to mutual funds that were eligible for such waivers.  From January 2009 through August 2016, Oppenheimer looked to its financial advisers to determine whether sales charge waivers could be applied to mutual fund sales.  However, Oppenheimer did not create or maintain policies or procedures that would have provided the advisers with adequate guidance in making determinations regarding sales charge waivers.  As a result, Oppenheimer failed to apply sales charge waivers to mutual fund purchases made by customers who were eligible for sales charge waivers.

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