FINRA fined Oppenheimer & Co. Inc. $2.25 million and ordered nearly $716k in restitution for four years' worth of unsuitable sales of leveraged, inverse, and inverse-leveraged Exchange-Traded Funds ("Non-Traditional ETFs") to elderly, conservative, and similarly unqualified customers. FINRA also sanctioned the firm for failure to enforce its written supervisory procedures (WSPs) in regards to suitability.
The findings state that Oppenheimer representatives solicited and effected non-traditional ETF trades that were unsuitable for specific customers, recommending the complex and speculative products to numerous customers with conservative/low-risk investment objectives. Oppenheimer brokers even made the unsuitable recommendations to some of the firm's elderly clients.
Pursuant to FINRA advisement to firms, non-traditional ETFs are often designed to be bought, held, and sold within one trading cycle, or about one business day, to sophisticated investors, and should not be marketed to retail investors who plan to hold them for more than one trading session. Oppenheimer's WSPs stated the firm would only sell the complex ETFs to "pre-qualified" retail customers who satisfied several criteria, one of which was an annual income in excess of $200,000.
However, some Oppenheimer brokers recommended these same non-traditional ETFs to non-qualified elderly and conservative clients who wanted to hold onto their positions for a lengthier amount of time and did not meet minimum qualification thresholds.
For example, one such 89-year old conservative customer ended up holding 96 solicited non-traditional ETF positions for an average of 32 days (and maximum of 470 days), for a net loss of $51,847.
A 91-year-old conservative customer held 56 non-traditional ETFs for an average of 48 days (max holding was 706 days) and netted a loss of $11,161, and a third elderly client lost $2,746 after holding just two non-traditional ETF positions in her account for 729 days.
All of the above customers earned annual incomes of $50,000 or less, and, thus, would have been disqualified from ETF qualification pursuant to the firm's WSPs. For that reason, FINRA also charged Oppenheimer with failing to supervise and enforce its WSPs.
If you have invested with Oppenheimer & Co. Inc. or with any firm, broker, or investment adviser whose unsuitable solicitation and sale of complex products such as inverse, leveraged, and non-traditional ETFs or whose failure to enforce supervisory procedures to determine suitability has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.