Oppenheimer

FINRA Orders Oppenheimer to Pay $3.4M Penalty For Alleged Reporting Failures and Not Giving Discounts to Mutual Fund Clients

Published on: November 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that Oppenheimer & Co. (OPY) must pay $3.4M in sanctions. According to the regulator, for eight years the firm was about four years late when submitting 365 filings about disciplinary actions that it brought against its brokers and in arbitration and litigation settlements. FINRA is also accusing Oppenheimer of not giving seven claimants the documentation they needed in their arbitration against Mark Hotton, an ex-registered representative, and of overcharging 825 customers more than $1M collectively for mutual fund shares over a six-year period.

The self-regulatory organization claims that the late filings to FINRA took place between 2008 and 2016 and that Oppenheimer failed to provide claimants the documentation related to the Mark Hotton allegations between 2010 and 2013. The failure to apply the appropriate fee waiver discount for mutual fund shares purportedly occurred between 2009 and 2015.

Already, Oppenheimer has paid over $6M to settle customer disputes alleging inadequate supervision of Hotton and another $1.25M to 22 customers who did not file arbitration cases but suffered losses, too. Oppenheimer also was ordered to pay a $2.5M fine to FINRA last year over the Hotton claims. The former broker, whom FINRA permanently barred from the securities industry three years ago, was sentenced sentenced to 11 years in prison for stealing client monies and excessively trading their brokerage accounts.

Ex-Oppenheimer Broker Pleads Guilty in Insider Trading Case

Published on: October 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

David Hobson, an ex-Oppenheimer & Co (OPY) investment adviser, has pleaded guilty to the criminal charges of securities fraud and conspiracy to commit securities fraud. The 47-year-old Rhode Island broker admitted that he engaged in insider trading using information given to him by investment client Michael Maciocio in order to make illegal profits. Maciocio has already pleaded guilty to the charges in the insider trading case against him.

According to Preet Bharara, the United States Attorney for the Southern District of New York, between 5/2008 to 4/2014 Hobson and Maciocio sought to trade on insider information regarding acquisitions that a particular pharmaceutical company was considering. Although Bharara’s release doesn’t name the company, Law360 identified the company as Pfizer Inc. Bharara said that Maciocio, who was master planner in Pfizer’s active pharmaceutical ingredient supply chain group, would find out about the upcoming acquisitions and tip Hobson.

Bharara’s statement said that even though Maciocio was not given access to the acquisitions that the pharmaceutical company was targeting, he would use the code name of the acquisition, the drug indication, the dose, the clinical trial phase, and/or the drug’s chemical structure to find out the name of the company that Pfizer was considering acquiring. Maciocio would trade based on this information and share the information with Hobson. The two men have been friends since childhood.

US Supreme Court Strikes Down Law That Would Have Let Puerto Rico Public Utilities Restructure Their Debt

Published on: June 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Supreme Court struck down a Puerto Rico law that would have let its public utilities restructure $20 billion of debt. The territory’s officials enacted the Recovery Act in 2014 in an attempt to help it deal with its $70 billion of debt. Puerto Rico’s large public utilities owe about $26 billion to bondholders and banks. It was their creditors that challenged the law in federal court.

Puerto Rico is not allowed to file for bankruptcy protection. The Commonwealth is excluded from Chapter 9, which is the section of the bankruptcy code that usually applies to local governments, including cities, public utilities, counties, and other branches that have become insolvent and need help. (Puerto Rico has tried to convince the U.S. congress to get rid of the 1984 rule that excluded it from Chapter 9. No reason has been provided for why it was deliberately left out.)

Writing for the majority in the Supreme Court ruling, Justice Clarence Thomas reminded us that the federal bankruptcy code does not let lower government units and states enact their own bankruptcy laws. However, U.S. legislators are looking for ways to potentially help Puerto Rico.

A bill passed by the U.S. House of Representatives to help the territory deal with its debt crisis has gone to the Senate for consideration. If passed into law, the bill would establish a board to manage the restructuring of Puerto Rico’s debt and oversee the territory’s finances. The Commonwealth sure could use the help.

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

Published on: June 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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.

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund

Published on: May 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

After nearly twenty years, Oppenheimer (OPY) is liquidating its Commodity Strategy Total Return Fund (QRAAX) in mid-July. The reason for the shut down is underperformance.

According to the company’s website, the Oppenheimer Commodity Strategy Total Return Fund lost 49% since it was created in 1997, and average yearly returns have consistently declined by the double digits. The Wall Street Journal reported that the commodity fund has lost money annually since hitting an 8.5% return in 2010. It’s also been up 7.19% since the beginning of 2016. However InvestmentNews reports, the fund’s performance has been poor over the last five years. The Oppenheimer fund’s assets under management is down to $269M from over $2B in 2011.

While Oppenheimer said that it continues to believe in the value of its investment strategy, the firm is now saying that investors would benefit more from a multi-asset portfolio. The Commodity Strategy Total Return Fund is most heavily involved in energy, with agriculture and precious industrial metals also big presences. The decline in their prices have played a factor in the fund’s decline.

Oppenheimer has also been in the spotlight of late because a lawmaker has asked the SEC to look into OppenheimerFunds and whether the firm has complied with securities laws when dealing with Puerto Rico bond investments. NY City Council Speaker Melissa Mark-Viverto believes that the firm helped to make the U.S. territory’s financial crisis worse. OppenheimerFunds is heavily invested in Puerto Rico. The Island owes more than $70B in debt.

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund, The Wall Street Journal, May 11, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis, Stockbroker Fraud Blog, May 9, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

Published on: May 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

Published on: April 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

Study Accuses Nearly 20% of Oppenheimer Advisers, 15% of Wells Fargo and UBS Advisers, Others of Misconduct

Published on: March 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

InvestmentNews reports that according to a new working paper by business school professors at the University of Minnesota and the University of Chicago, 7% of financial advisers have been subject to discipline for misconduct. The study noted that at certain large firms, the trend of misconduct exceeds that average. For example, found the paper, at Oppenheimer & Co., almost 20% of its advisors’ records indicate misconduct.

Other advisor firms noted for their high misconduct rates included First Allied Securities at 17.7%, Wells Fargo Advisors (WFC) at 15.3%, UBS Financial Services (UBS) at 15.14%, Cetera Advisors at 14.39%, Securities America at 14.3%, National Planning Corp. at 14%, Raymond James Financial Inc. (RJF) at 13.74%, Stifel Nicolaus & Co. at 13.27%, (SF) and Janney Montgomery Scott at 13.27%. Firms with the lowest misconduct rates among its advisers included Morgan Stanley & Co. (MS), Goldman Sachs & Co. (GS), BlackRock Investment (BLK), UBS Securities, Jefferies, Prudential Investment Management, and Wells Fargo Securities, among others.

University of Chicago finance professor Amit Seru, who co-authored the working paper, titled “The Market for Financial Adviser Misconduct” called this misconduct problem “pervasive.” He also said that he believes the study did a conservative job of measuring misconduct, which ranges from behavior such as placing clients in unsuitable investments to the more extreme type, such as using client accounts to trade without their permission. Insurance products were reportedly factor in many misconduct cases.

The study noted that firms often do take action when misconduct by its advisers is discovered. About half of those caught are fired, although 44% of these individuals will typically end up going to another firm. Often these places will have higher misconduct rates, making it possible for the advisers to continue engaging in wrongful behavior. The study said that prior offenders are five times more likely to taking part in new actions of misconduct than the average adviser.
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Ex-Oppenheimer Employees Resolve SEC Charges Over Unregistered Penny Stock Sales

Published on: July 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission said that Scott A. Einsler, Arthur W. Lewis, and Robert Okin, three former Oppenheimer & Co. (OPY) employees, have settled charges involving the unregistered sales of billions of shares of penny stocks for a customer. The actions are related to part of an enforcement action that the brokerage firm settled with the regulator, as well as with the U.S. Treasury Department’s Financial Crimes Enforcement Network. Under that agreement, the firm paid $20 million to resolve those claims.

In this latest order instituting administrative proceedings that have been resolved, Eisler, who used to be a registered representative at an Oppenheimer Florida branch, is accused, along with former supervisor and branch manager Lewis, of executing the penny stock shares in illegal unregistered distributions. While securities laws grant exemption liability for brokers who make a reasonable inquiry into the facts involving the proposed sale of a customer, the SEC said that the two men did not make the required inquiry even though there were significant warning signs. Also, according to the regulator, Lewis and Okin, previously the head of the private client division, committed supervisory failures when they did not address the warnings.

To resolve the proceedings against him, Eisler consented to pay $50,000 and he will be barred from the securities industry and penny stock sales for a year. Lewis also will pay a penalty for the same amount and his bar from the industry in a supervisory capacity is also for a year. Okin will pay $125,000 and also serve a yearlong supervisory bar from the industry. All three men agreed to settle without denying or admitting to the SEC’s findings.

SEC Probes Whether Mutual Fund Managers Are Charging Investors Undisclosed Fees

Published on: July 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is looking into whether Franklin Templeton, Oppenheimer Funds (OPY), J.P. Morgan Chase & Co. (JPM), and other mutual fund managers are charging investors for fund fees that have not been fully disclosed. While money managers are allowed to use some of investors’ money to pay compensation to the brokers who sell a fund’s shares, as well as for certain marketing purposes, the regulator wants to know whether firms are exceeding the allowed limits.

The Commission is trying to find out whether mutual fund companies have come up with ways to make extra payments to brokers by using investor assets to cover certain services, such as the consolidation of client trading records. The agency is worried that proper disclosure of these added fees are not being made to investors. The SEC is also wondering if brokers are more inclined to recommend funds that provide such additional payments, compelling them to prioritize profit over funds.

Fund companies have said that they do properly disclose fees for marketing. Oppenheimer, which is one of the companies that the SEC has investigated over this issue, has said that it doesn’t bill mutual fund clients for recordkeeping costs but that the money comes from the firm.
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