The Financial Industry Regulatory Authority has announced that SunTrust Investment Services Inc. has agreed to pay a $700,000 fine to settle allegations that it engaged in supervisory violations involving its fee-based brokerage business and charged excessive commissions on low-priced stocks. By agreeing to settle, the investment firm is not admitting to or denying the charges.
SunTrust terminated its Portfolio Choice accounts, which were fee-based accounts, in 2006. The charges by FINRA involve the period between November 2002 and December 2005 when SunTrust opened more than 2,644 Portfolio Choice accounts without properly evaluating whether the accounts were the appropriate fit for customers. According to FINRA, SunTrust neglected to properly monitor the Portfolio Choice accounts to make sure that they continued to be the appropriate account choice for clients.
FINRA found that at least 36 Portfolio Choice accounts that did not engage in any trades for at least eight quarters-yet these accounts were charged more than $129,000 in fees during the last four quarters. FINRA also says that a number of SunTrust Portfolio Choice clients paid an asset-based fee and transaction commission on the same assets.
FINRA was able to identify over 900 incidents when SunTrust neglected to exclude a customer asset that was purchased with a commission from the asset base that is used to determine the account fee. The error resulted in customers being charged twice, leading to about $437,500 in commissions and excess fees for SunTrust clients.
FINRA also accused the investment firm of acting inappropriately when it let a number of customers keep their accounts and pay for them even though they had not traded for years. Between January 2002 and September 2, 2005, FINRA says SunTrust did not establish a supervisor system that could make sure that registered representatives would charges clients fair commissions on securities transactions. The firm used an automated commission system that charged commission of more than 5% when low quantities and/or low-priced stocks were sold or purchased. Because of this, some clients were billed excess commissions nearing $100,000 in total.
Also as part of its settlement, SunTrust said it would certify that it returned $713,362 in interest and fees to clients that were affected by the alleged violations. FINRA says it took this voluntary refund into account when assessing its fine against SunTrust.
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