Two affiliated broker-dealers settled FINRA charges for inadequate supervision of the "rollover" of investments in Unit Investment Trusts ("UITs") (i.e., a customer selling a UIT before its maturity date and rolling the proceeds over to a different UIT).
FINRA observed that the firms had supervisory procedures for spotting the redemption of interests in a UIT, but not for determining for how long the UIT interest had been held or what the investor did with the proceeds of the redemption. As a result, the firms were found to have violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade"), as the firms' supervisory systems were deemed to be insufficient. To settle the charges, the firms agreed to (i) censures, (ii) $650,000 in total fines and (iii) approximately $2.46 million in restitutions.
FINRA recognized that the firms provided "extraordinary cooperation" and "substantial assistance" to FINRA, and that the firms, on their own initiative, identified customers eligible for restitution and employed corrective measures to their procedures to avoid recurrence of the supervisory failures.
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