Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales

FINRA is fining Oppenheimer & Co. Inc. (OPY) $2.2M for the sale of non-traditional exchange-traded funds, including inverse, leveraged, and inverse-leveraged ETFs, to retail customers without proper supervision and for suggesting them to clients even though they were not appropriate investments for them. The self-regulatory organization is also making the firm pay over $716,000 to the customers who were impacted.

FINRA said that even though Oppenheimer put into place policies barring representatives from both selling non-traditional ETFs to retail customers and executing non-traditional ETF purchases that were unsolicited for said customers unless they met certain requirements—including liquid assets greater than $50OK—the firm did not do a reasonable job of making sure that these policies were properly enforced. (The firm had put them into effect after FINRA issued a notice advising brokerage firms of the risks involved in non-traditional ETFs.) Because of this, Oppenheimer continued to market non-traditional ETFs to retail customers and effect transactions that were unsolicited for those who failed to meet the requirements.

FINRA also said that Oppenheimer did not perform sufficient due diligence about the features and risks of non-traditional ETFs and lacked a reasonable basis for recommending them to retail customers. The SRO said that Oppenheimer solicited and effected non-traditional ETF purchases that were not suitable for customers, including senior investors.

For example, one 89-year-old customer with a yearly income of $50K held over 90 solicited non-traditional ETF position for an up to 470-day total and lost nearly $52K in the process. Another investor who was even older, and whose yearly income was $30K, held over 50 solicited non-traditional ETF positions for over 600 days. This investor lost over $11K.

FINRA said that Oppenheimer did not put into place a proper supervisory system to monitor holding periods for nontraditional ETFs and had no surveillance or exception reports to properly monitor these ETFs. As a result, customers like these elderly seniors ended up holding these funds anywhere from weeks to years.

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The FINRA action in the Oppenheimer case