South Florida Arbitration & Litigation Lawyer Blog
Cambridge Investment Research, Inc. (CRD #39543, Fairfield, Iowa)
FINRA recently announced that on May 3, 2018 Cambridge Investment Research, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a reasonably-designed supervisory system and procedures regarding redemptions of variable annuities and leveraged, inverse and inverse-leveraged ETFs (non-traditional ETFs). The findings stated that on approximately 100 occasions, the firm’s customers redeemed variable annuities and transferred the proceeds to an advisory account. The firm’s associated persons were involved with and recommended some of those transactions. The firm did not systematically supervise or record those redemptions or have written procedures for doing so, nor did the firm ascertain which of those transactions were recommended by the firm’s associated persons and were thus subject to FINRA’s suitability requirements. The firm’s supervisory system and WSPs were not reasonably designed to comply with applicable supervision and recordkeeping requirements with respect to redemptions of variable annuities, and the firm did not record those transactions. The findings also stated that 84 firm registered representatives traded non-traditional ETFs in retail customer accounts. These registered representatives executed 4,773 transactions totaling approximately $127 million. The firm established WSPs for non-traditional ETFs that required registered representatives who wanted to trade non-traditional ETFs to complete a 45-minute training session and sign a “Leveraged/Inverse ETF Rep/Advisor Attestation Form.” The attestation form required representatives to make several representations before executing a nontraditional ETF transaction. The firm failed to enforce its WSPs regarding non-traditional ETFs in several respects. First, the firm allowed representatives to execute non-traditional ETF trades before signing the attestation form. All 84 representatives who executed nontraditional ETF transactions executed at least one such transaction before signing the attestation form. Second, the firm allowed customers to purchase non-traditional ETFs before submitting the required disclosure form. The findings also included that the firm did not establish an adequate supervisory system to effectively monitor holding periods for non-traditional ETFs. The firm’s procedures required the compliance department to review customer accounts that held non-traditional ETF positions and identify any accounts that were holding these positions for more than 10 days and, if necessary, follow up with the responsible registered representative. The firm, however, failed to enforce these procedures. The firm’s failure to adequately monitor customers’ non-traditional holding periods resulted in customers holding non-traditional ETF positions for lengthy periods of time. There were numerous non-traditional ETF positions that were sold by the firm’s customers that were held for longer than seven days. (FINRA Case #2016048934301)
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