According to FINRA’s order, between January 2018 and June 2024, the firm sold approximately US$3.8 billion worth of front-end load mutual funds. Those trades “generated a substantial portion of the firm’s revenue,” the regulator said. Yet, it also found that the firm “failed to implement a system, including written policies and procedures,” that were designed to properly supervise reps’ recommendations to ensure their compliance with suitability obligations and best interest requirements.
“Securities America’s supervisory system was not reasonably designed to detect switches and short-term sales,” the SRO said. “Even when the firm identified such trades, the firm failed to reasonably review them to ensure that representatives had reasonably considered fees and commissions.”
FINRA found that the lack of oversight resulted in more than 1,000 fund switches and 2,000 short-term trades “that were potentially unsuitable or not in the customer’s best interest” — and that investors paid more than US$2 million in commissions and fees for these kinds of trades.
The firm settled the allegations, which arose from a FINRA compliance exam, without admitting or denying the charges.
Along with the fine, the firm is also paying more than US$2 million in restitution to investors.
“When firms fail to supervise mutual fund recommendations, investors pay the price through unnecessary fees and charges. This US$2 million in restitution will make affected customers whole, but prevention should always be the priority,” said Bill St. Louis, executive vice-president and head of enforcement at FINRA, in a release.