Broker Violations & FINRA: PNC Investments to Pay $225K for Overcharging for Mutual Funds and Stifel Nicolaus is Fined $750K For Not Following Reserve Requirements

The Financial Industry Regulatory Authority has announced that PNC Investments will pay nearly $225K in restitution for charging retirement clients too much for mutual fund investments. According to the regulator, the brokerage firm did not apply waivers for investors in certain Class A share mutual funds even though there was a waiver for front-end charges for eligible customers.

Instead, said FINRA, PNC Investments sold Class A shares customers with a front-end load or other shares that had a back-end load and higher fees and expenses, some of which were charged on an ongoing basis. Because of this, certain customers were charged excessive fees and paid them.

FINRA said that PNC Investments charged 121 customer accounts in excess of $191,740 for mutual funds—although the actual amount, with interest, was closer to $224,750. PNC will pay restitution to eligible investors.

The brokerage firm self-reported the overcharges after reviewing its own conduct last year to assess whether it was issuing the sales waiver to those that were eligible. FINRA said that the broker-dealer experienced lapses in supervision, did not keep up written policies and procedures that were adequate, and failed to help advisers assess when to waive the sales charges.

In other broker-dealer news, Stifel, Nicolaus & Co., Inc. (SF) will pay $750K to settle FINRA charges accusing the firm of not correctly accounting for customer assets in a reserve fund, as well as assets in a proprietary trading account. From 1999 to 2012 the broker-dealer was allowed to use customer assets as bank loan collateral for certain assets. However, said FINRA, the firm failed to properly account for this use of assets in a reserve fund that was supposed to back up said collateral. Also, for eight months in 2013, the firm purportedly made errors when determining how much money it should have for its Proprietary Accounts of Introducing Brokers and Dealers. This is a reserve account for the firm’s assets. Stifel said that it worked with FINRA to arrive at the settlement and has since changed its compliance policies.

By law, brokerage firms that use customer money as loan collateral have to keep up a customer reserve account. This ensures that there is money to pay investors should a broker-dealer go into liquidation. FINRA said that Stifel violated current securities rules when it traded certain loans for different loans that were secured using firm assets. As a result, Stifel didn’t need to calculate the reserves needed for the customer reserve account. The firm would then repeat this practice. FINRA said that this could have lowered how much the firm needed in reserve for customer collateral.

Our broker fraud law firm represents investors seeking to get their money back for losses they sustained because of the wrongful, negligent, or careless actions of a broker-dealer, investment adviser, or financial representative. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Broker-dealer to pay $225,000 for mutual fund sales violations, Investment News, April 13, 2016

FINRA Fines Stifel $750,000 , Financial Adviser, April 15, 2016