FINRA Sanctions Oppenheimer & Co. $2.9 Million for Unsuitable Sales of Non-Traditional ETFs and Related Supervisory Failures

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer & Co. Inc. $2.5 million and ordered the firm to pay restitution of more than $716,000 to affected customers for selling leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) to retail customers without reasonable supervision, and for recommending non-traditional ETFs that were not suitable. In August 2009, Oppenheimer instituted polices prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs, and also prohibited them from executing unsolicited non-traditional ETF purchases for retail customers, unless the customers met certain criteria, such as the customer had liquid assets in excess of $500,000. Oppenheimer, allegedly, failed to execute the stated criteria. During the time period of August 2009 until September 30, 2013, more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers.

FINRA found that Oppenheimer failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs, and, as a result, did not have a reasonable basis to recommend these ETFs to retail customers. Also, Oppenheimer’s representatives solicited and effected non-traditional ETF purchases that were unsuitable for specific customers. For example:

An 89-year conservative customer with annual income of $50,000 held 96 solicited non-traditional ETF positions for an average of 32 days (and for up to 470 days) resulting in a net loss of $51,847.

A 91-year conservative customer with an annual income of $30,000 held 56 solicited non-traditional ETF positions for an average of 48 days (and for up to 706 days), resulting in a net loss of $11, 161.

A 67-year conservative investor with an annual income of $40,000 held two solicited non-traditional ETF positions in her account for 729 days, resulting in a net loss of $2,746.

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