Ameriprise Financial Failed to Supervise Michael Halla's Unsuitable Closed End Fund Short-Term Trading, Fined $100,000

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FINRA fined Ameriprise Financial Services $100,000 for failing to supervise ex-broker Michael Edward Halla's unsuitable short-term trading of IPO closed end funds (CEFs). The investigation notes that when CEFs are unsuitably traded in the short-term, it puts representatives in the position of potentially earning high fees when the trade volume and/or frequency is improperly inflated, at detrimental cost to investors.

AWC #2014039843501 (Ameriprise Financial Services)

AWC #2012032915101 (Michael Edward Halla, CRD #2738221)

According to the findings, CEFs in at least 16 customer accounts designed to be held as long-term investments were instead unsuitably traded in the short-term when Halla improperly recommended the short-term CEF transactions without a reasonable basis to do so. The report indicates that as a result of the improper trading activity, some customers were susceptible to greater sales charges while the representative responsible for the unsuitably fast trades was put in position to earn high fees.

In Halla's AWC, FINRA indicated that he unsuitably recommended over 20 of his customers purchase CEFs that were part of a syndicate program offered by Ameriprise in which Ameriprise acted as co-lead or co-manager. The Halla investigation states that each CEF transaction came with an upfront cost known as "selling concession" from which a broker's commission was generated, while the relevant CEF prospectuses stated, in part, "Risk may be greater for investors expecting to sell their shares in a relatively short period of time after completion of the public offering."

As a result of Halla's role in recommending short-term CEF trades without a reasonable basis to do so, FINRA suspended him two months, fined him $10,000 and ordered $18,000 in partially disgorged commissions. Having completed his suspension, Halla is presently associated with SII Investments, Inc. in Manitowoc, Wisconsin. His BrokerCheck report indicates that Ameriprise terminated him in June 2012, the same month he joined SII.

Regarding firm supervision, the present AWC states that Ameriprise representatives and principals responsible for supervising CEF transactions underwent required training that taught, "IPOs of CEFs are typically not designed for short-term trading," and that selling CEF shares too quickly after the IPO "may not be beneficial to the client."

Investigators found that on two occasions, supervisory personnel flagged the short-term CEF trading activity as suspicious, but no demonstrable action was taken.

Accordingly, FINRA determined that Ameriprise Financial failed in its supervisory responsibilities, and failed to establish and maintain adequate procedures regarding the supervision of CEF sales. Regulatory staff determined Ameriprise thus failed to detect and prevent the unsuitable short-term trading activity.

If you have invested with Ameriprise Financial, their former (and SII Investments' current) broker Michael Edward Halla, or with any broker or financial adviser who has unsuitably recommended or engaged in excessive, short-term, or otherwise improper and risky CEF trading that 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.

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