South Florida Arbitration & Litigation Lawyer Blog
FINRA Mutual Fund and Negligent Supervision Arbitration Attorney, Russell L. Forkey, Esq.
September, 2011:
Veritrust Financial, LLC (CRD #106594, Austin, Texas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $90,000 and ordered to pay $34,105.40, plus interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish and maintain a supervisory system or WSPs reasonably designed to detect and prevent the charging of excessive commissions on mutual fund liquidation transactions. The findings stated that the firm failed to put in place any supervisory systems or procedures to ensure that customers were not inadvertently charged commissions, in addition to the various fees disclosed in the mutual fund prospectus, on their mutual fund liquidation transactions. The findings also stated that the firm’s failure to take such action resulted in commissions being charged on transactions in customer accounts that generated approximately $64,110 in commissions for the firm. The findings also included that the firm had inadequate supervisory systems and procedures to ensure that a firm principal reviewed, and the firm retained, all email correspondence for the requisite time period; the firm failed to review and retain securities-related email correspondence sent and received on at least one registered representative’s outside email account, and the firm did not have a system or procedures in place to prevent or detect non-compliance.
FINRA found that the firm failed to conduct an annual inspection of all of its Offices of Supervisory Jurisdiction (OSJ) branch offices. FINRA also found that the firm failed to comply with various FINRA advertising provisions in connection with certain public communications, including websites, one billboard and one newsletter, in that a registered principal had not approved websites prior to use; websites did not contain a hyperlink to FINRA’s or Securities Investor Protection Corporation (SIPC)’s website; one website, the billboard and the newsletter failed to maintain a copy of the communication beginning on the first date of use; and sections of websites that concerned registered investment companies were either not filed, or timely filed, with FINRA’s Advertising Regulation Department. In addition, FINRA determined that websites contained information that was not fair and balanced, did not provide a sound basis for evaluating the facts represented, or omitted material facts regarding equity indexed annuities, fixed annuities and variable annuities. Moreover, FINRA found that websites contained false, exaggerated, unwarranted or misleading statements concerning mutual B shares; the firm’s websites and the billboard did not prominently disclose the firm’s name, and a website, in connection with a discussion of mutual funds, failed to disclose standardized performance data, failed to disclose the maximum sales charge or maximum deferred sales charge and failed to identify the total annual fund operating expense ratio, and a website, in a comparison between exchange-traded funds (ETFs) and mutual funds failed to disclose all material differences between the two products. Furthermore, FINRA found that the firm failed to report, or to timely report, certain customer complaints as required; the firm also failed to timely update a registered representative’s Uniform Termination Notice for Securities Industry Registration (Form U5) to disclose required information. The findings also stated that the firm failed to create and maintain a record of a customer complaint and related records that included the complainant’s name, address, account number, date the complaint was received, name of each associated person identified in the complaint, description of the nature of the complaint, disposition of the complaint or, alternatively, failed to maintain a separate file that contained this information. The findings also included that the firm failed to ensure that all covered persons, including the firm’s president and CEO, completed the Firm Element of Continuing Education (CE). FINRA found that the firm’s 3012 and 3013 reports were inadequate, in that the 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firm’s system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, did not provide a summary of the test results and gaps found, failed to detect repeat violations including failure to conduct annual OSJ branch office inspections, advertising violations, customer complaint reporting, and ensuring that all covered persons participated in the Firm Element of CE. FINRA also found that the firm’s 3013 report for that year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, FINRA determined that the firm also failed to enforce its 3013 procedures regarding notification from customers regarding address changes. (FINRA Case #2008011640802).