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Cetera Financial Group's Investors Capital Corp to Pay $1.1 Million Over Unit Investment Trust, Steepener Note Sales

FINRA fined Investors Capital Corporation and ordered restitution for a total penalty of $1.1 million ($250,000 fine and $841,532.97 in restitution payable to 472 customer accounts) after finding that the firm recommended unsuitable short-term unit investment trust (UIT) and steepener note transactions, failed to provide sales charge discounts, and failed to supervise or have adequate supervisory procedures in place regarding UITs, including some sales to elderly clients that proved unsuitable.

Investors Capital Corporation is a broker-dealer of Cetera Financial Group that is in the process of closing and transferring 458 advisers to Cetera Advisors, which is another arm of the Cetera Financial Group.

FINRA AWC #2013035035901

The findings state that from 2010 to 2015, multiple Investors Capital Corp representatives recommended unsuitable short-term UIT transactions in several customer accounts. Investigators explained that although UITs are generally intended as longer-term investments, the violative firm reps effected 971 short-term UIT transactions in 11 customer accounts, subjecting these customers to additional sales charges and fees.

For instance, a 68-year-old customer with an income account objective purchased and sold 59 UITs with an average holding period of just three months, while proceeds from the sale of one UIT were used to purchase another UIT on at least 52 occasions. FINRA wrote that this client lost $32,607 as the result of these transactions.

Similar stories from FINRA's list of unsuitable UIT recommendations produced customer losses ranging from mere dollars to over $50,000.

In regards to Steepeners, which are complex and structured products whose returns are linked to the spread of interest rates (also known as the "steepness" of the rates' curve), FINRA likewise found unsuitable short-term trading recommendations at Investors Capital Corporation.

Steepeners, FINRA wrote, usually have long maturities which can span 20 to 30 years, and accordingly have limited secondary market options that may be illiquid, if they exist at all.

Nonetheless, investigators found that firm personnel recommended short-term trading in Steepeners to at least 63 customers without having a reasonable basis to do so, resulting in losses that totaled over $125,000.

FINRA also found that Investors Capital Corporation failed to identify and apply sales charge discounts to nearly 2,000 eligible purchases of UITs, resulting in customers paying excessive sales charges of about $472,876.

The findings conclude by charging Investors Capital Corp with failing to establish an adequate supervisory system to ensure compliance with UIT and Steepener suitability requirements, and with failing to monitor how long UITs and Steepeners were held in customer accounts, in addition to insufficient training of its sales force as well as deficient monitoring related to sales charge discounts.

If you have invested with Cetera Financial Group's Investors Capital Corporation or with any broker, financial adviser or firm whose unsuitable recommendations—such as volatile short-term trading of UITs, Steepeners or another complex product without regard to your investment objectives—or whose failure to apply applicable sales charge discounts and/or excessive fees has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

The Law Offices of Jonathan W. Evans & Associates - California Securities Fraud Attorney
Located at 12711 Ventura Boulevard, Suite #440 Studio City, CA 91604. View Map
Phone: (800) 699-1881 | Local Phone: (818) 760-9880.