Unit Investment Trusts

Texas Wells Fargo Broker Kurt Gunter Is Sanctioned Over Allegedly Unsuitable UIT Sales

Published on: December 4, 2020 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Suspends Texas Broker For Three Months

Kurt Jason Gunter, a Wells Fargo Clearing Services (WRET) registered representative in Bee Cave, Texas, was recently sanctioned by the Financial Industry Regulatory Authority (FINRA).

The self-regulatory organization (SRO) contends that he allegedly made unsuitable unit investment trust (UIT) sales to customers. In addition to having to pay a $10K civil fine, Gunter is suspended for three months beginning December 20, 2020. The broker, who is also a registered Wells Fargo investment adviser, consented to the sanctions but is not denying or admitting to the findings.

Shepherd Smith Edwards and Kantas Investigates UIT Claims Involving Ex-Raymond James Broker

Published on: March 9, 2020 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Raymond James Broker Named In $500K UIT Investment Fraud Claim

Our stockbroker fraud lawyers are investigating claims involving Ameriprise (AMP) and former Raymond James broker, E. Kyle Davis. Contact Shepherd Smith Edwards and Kantas (SSEK Law Firm) today if you believe that you may have fallen victim to investment fraud.

Davis, who has worked over two decades in the securities industry, has been named in six disclosures including four customer disputes. Still pending is one customer claim seeking $500K in damages involving a unit investment trust (UIT) while Davis was a Raymond James Financial stockbroker. The customer is making a number of allegations, including the following:

Oppenheimer To Pay $3.8M To Customers For Unit Investment Trust Rollover Fees

Published on: January 15, 2020 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Orders Oppenheimer To Pay $3.8M

Oppenheimer & Co. (OPY) must pay over $3.8M in restitution to customers who may have had to pay excess sales fees for the early rollovers of their United Investment Trusts (UITs). The order comes from the Financial Industry Regulatory Authority (FINRA) and includes an $800K fine for not reasonably supervising these early UIT rollovers.

The self-regulatory organization (SRO) contends that from 1/2011 to 12/2015 of the $6.4B of United Investment Trust transactions that Oppenheimer executed, $753.9M of these were early rollovers.

Morgan Stanley to Pay $13M Over Improper Supervision of Unit Investment Trust Sales

Published on: September 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is ordering Morgan Stanley Smith Barney LLC (MS) to pay about $9.8M in restitution to and a $3.25M fine for purportedly not properly supervising hundreds of financial representatives who sold short-term trades of UITs. The firm settled without denying or admitting to the regulator’s charges.

According to the self-regulatory organization, from 2/2012 through 6/2015, the brokerage firm’s representatives effected short-term UIT rollovers, including a number of them more than 100 days prior to maturity, in customer accounts. FINRA said that the firm did not properly supervise these reps, when they engaged in the UIT sales, nor did it properly train them regarding the investments. It also purportedly failed to give supervisors adequate guidance about how to study transactions for signs of unsuitable short-term trading. Morgan Stanley is accused of failing to put into effect a system “adequate” enough to identify short-term UIT rollovers and of not providing supervisory assessment for UIT rollovers before execution.

UITs
Unit investment trusts are investment companies that offer units in a securities of a portfolio. They are subject to termination on a certain maturity date, usually after 15 months or 24 months. They typically come with certain fees, including a creation fee and a deferred sales charge. According to FINRA, when a new UIT compels a customer to be pay higher sales charges over time, this could be a red flag indicating suitability issues.

Securities Fraud: Ex-SWS Financial Services Broker Faces Improper Trading Charges, Ex-Fox Commentator Settles Penny Stock Scam Case, and Former Investment Adviser Gets 7-Years in Prison

Published on: April 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Accuses Ex-Broker of Unsuitable Trading Involving Mutual Funds
David Randall Lockey, a former broker, is facing Financial Industry Regulatory Authority charges for allegedly engaging in improper trading of customer accounts while associated with SWS Financial Services Inc. He is no longer with that firm, now called the Hilltop Securities Independent Network. According to the regulator, Lockey took part in “unsuitable short-term trading and switching” involving unit investment trusts and mutual funds in four accounts between ’12 and ’14.

Lockey purportedly made about $75,730 for himself and the firm while engaging in improper trading. Meantime, three of the four customers whose accounts he used sustained losses of $15,699. The fourth customer made a gain of almost $5,000.

FINRA said Lockey has not been registered with any broker-dealer since 2014.

Ex-TV Commentator Settles Penny Stock Fraud Charges with the SEC
The U.S. Securities and Exchange Commission is charging former FOX commentator Tobin Smith with fraud. According to the regulator, Smith, who is also a market analyst, and his NBT Group fraudulently promoted a penny stock to investors.

The SEC said that both Smith and his firm received payments to prepare and distribute e-mails, articles, blogs, and other communication promoting IceWEB Inc. stock. They purportedly failed to fully disclose they were receiving the compensation.

The investors were not made aware of that part of what Smith and NBT were paid was linked to a sustained rise in the data storage company’s share price. The Commission said that marketing materials the investors received included misleading and false statements put there to artificially up the share price and trading volume of IceWEB stock. For example, payment for promotional efforts was $300K and IceWEB stock. NBT could also make over $250K if marketing campaigns proved successful.

Financial Firms and Securities Cases: BNY Mellon to Pay $3M Over Computer Glitch that Affected Mutual Funds, Wedbush Fined $675K by FINRA and Nasdaq, and Triad Advisers Settles UIT Charges

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

BNY Mellon to Pay Massachusetts $3M Over Computer Problem That Impacted Mutual Funds

Bank of New York Mellon (BK) will pay $3 million to the state of Massachusetts to resolve a probe that found that a computer glitch did not calculate net asset values for over 1,000 mutual funds. Although the bank hired SunGard InvestOne to calculate these values, there was one-weekend last year when a malfunction occurred.

The Massachusetts Securities Division conducted an investigation and discovered that BNY Mellon lacked a back-up plan to deal with such a malfunction. Because of this, non-uniform and untimely information was sent to clients and funds. As Secretary of the Commonwealth William F. Galvin noted, it is the job of financial institutions like BNY Mellon to oversee third-party vendors and put into place a back-up plan in the event a vendor’s system fails. The bank says that in the wake of the outage, it took action to protect client interests and ensure that the daily net asset values were issued.

BNY Mellon said that it has since made investors and the funds that sustained losses because of the computer error whole. The bank has made changes to supervisory procedures.

WedBush to Pay $675K Fine to Nasdaq and FINRA over Trading and Clearing Errors Involving Exchange-Traded Funds

Wedbush Securities Inc. will pay a $675K fine to the Nasdaq Stock Market and the Financial Industry Regulatory Authority Inc. over clearing and trading mistakes involving redemption and trading activities related to leveraged ETFs. Wedbush served as Scout Trading, LLC’s clearing firm.

According to FINRA, from 1/10 to 2/12, Scout Trading was not long enough in the shares that made up the redemption orders. Scott Trading turned in more than 250 naked redemption orders via Wedbush. These involved nearly a dozen ETFS that totalled over 295 million shares. This activity and ETF short-selling on the second market by Scout Trading led to Wedbush’s failure to deliver on a number of occasions. (This could have led to a naked short sale in which the seller does not arrange to borrow the securities in a manner timely enough for the buyer to receive the delivery within the standard three days.)

FINRA Orders 12 Financial Firms to Pay $6.7M for Not Charging UIT Purchase Discounts

Published on: October 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Twelve financial firms will pay over $4 million in restitution and fines of over $2.6M for purportedly not applying sales charge discounts to the sale of Unit Investment Trusts. The fines are also for supposed supervisory failures.

The firms and the payments they will make include:

• First Allied Securities, Inc., which will pay over $689K in restitution and a $325K fine.

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs.

Published on: November 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says that Chase Investment Services Corporation will pay back investors for losses sustained from the unsuitable recommendation made that they buy floating rate loan funds and unit investment trusts. In addition to paying back clients $1.9M, Chase must also pay a $1.7M fine.

According to FINRA, brokers with Chase recommended these financial instruments to clients even though the investments were not suitable for them—either because they had hardly any investment experience or only wanted to take conservative risks. The SRO also says that the Chase brokers had no reasonable grounds to think the financial products would be a right fit for these investors.

FINRA believes that Chase failed to properly train its brokers or give them guidance about the suitability of floating-rate loan funds and UITs, as well as the risks involved. For example, there were UITs that contained a significant portion of assets in closed-end funds with high-yield or junk bonds. Yet, despite the risks involved, brokers from Chase made about 260 recommendations that were not suitable for clients who had little (if any) investment experience or were averse to high-risk investments. These investors ended up losing about $1.4 million.

Also subject to substantial credit risk and illiquidity were the floating-rate loan funds. Despite the fact that concentrated positions in the fund were unsuitable for specific clients, FINRA says that Chase brokers still recommended these to clients who wanted low risk, very liquid investments or preferred to preserve principal. Because of these allegedly unsuitable recommendations, investors lost almost $500K.

FINRA says that WaMu, Investments Inc., also recommended that customers by floating-rate loan funds, even though these were not appropriate for the investors. The financial firm, which had merged with Chase in 2009, is also accused of not properly training or supervising its employees that sold the investments.

More About UITs
Unit investment trusts involve diversified securities baskets that may contain high-yield bonds. While junk bonds can make greater returns for investors than investment-grade bonds, they also come with a high degree of risk.

More About Floating-Rate Loan Funds
These mutual funds are invested in short-term bank loans for companies with a below investment grade crediting rating. What investors earn will fluctuate depending on what interest rates the banks happen to be charging on the loans.

In the wake of the allegations against Chase, FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that it was key that financial firms provide the proper guidance and training to brokers about product sales while supervising sales practices.

JPMorgan unit fined $1.7M over investment sales, Bloomberg Business Week/AP, November 15, 2011

FINRA Orders Chase to Reimburse Customers $1.9 Million for Unsuitable Sales of UITs and Floating-Rate Loan Funds, FINRA, November 15, 2011

More Blog Posts:
Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Blog, September 17, 2011

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Institutional Investor Securities Blog, July 16, 2011

Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million, Stockbroker Fraud Blog, August 22, 2010