Cadaret, Grant & Co. and Chase Investment Services overcharged their customers on purchases and sales of unit investment trusts because they allegedly failed to adequately prepare their brokers, traders and supervisors.  They paid fines totaling a combined $225K.  Here are their stories.

    Cadaret, Grant & Co., Syracuse, NY, agreed to pay a $125K fine, provide remediation to customers who purchased unit investment trusts (UITs) and qualified for, but did not receive, the applicable sales charge discount, and correct its UIT systems and procedures.   This settled FINRA charges that the firm failed to provide eligible customers with appropriate discounts on both UIT rollover and breakpoint purchases, which led to overcharging.  FINRA found that the firm lacked effective supervisory system and WSP's to ensure that correct discounts were applied.  FINRA also found that firm RR's, trading personnel and supervisors were not adequately informed about the sales charge discounts associated with UITs.  Instead, the firm apparently relied on its trading desk to ensure that clients purchasing UITs received appropriate sales charge discounts - even though traders had not been adequately trained or informed. 

Specifically, the firm allegedly had no supervisory review to determine whether trading personnel were providing customers with appropriate sales charge discounts, either through periodic review or exception reports.  So, when the UIT trading desk repeatedly misinterpreted certain rollover provisions described in UIT prospectuses.  In addition, FINRA found that the trading desk was unaware that some UITs offered breakpoints - starting at $25,000  - and the firm didn't consider customer UIT purchases at $25,000 to be eligible for a volume discount.  Furthermore, FINRA found that the firm had issues with UITs that imposed a contingent deferred sales charge.  

Finally, Cadaret issued to customers confirmations on UIT purchases that did not contain the required legend:  “On selling your shares, you may pay a sales charge.  For the charge and other fees, see the prospectus.”   This is FINRA Case #2008015701101, February Disciplinary Actions.

        Chase Investment Services, Chicago, IL, agreed to pay a $100K fine and provide remediation to customers who purchased UITs and qualified for, but did not receive, the applicable sales charge discount.   This settled FINRA charges that the firm lacked effective supervisory system and WSP's to ensure that discounts were correctly applied on eligible UIT purchases.  Chase relied primarily on brokers to ensure that customers received appropriate UIT sales charge discounts, even though brokers and their supervisors were not appropriately informed or trained.  FINRA further noted that the firm’s trading desk procedures stated that
the RR had a responsibility to ensure clients received breakpoints, gave limited guidance on rollovers and made no mention of exchanges.  There were no WSPs for supervisors addressing UIT sales charge discounts.   This led to overcharging. 

FINRA also found that the firm had issues with UITs that imposed a contingent deferred sales charge.  And, similar to Cadaret, Chase failed to ensure that its customers’ UIT purchase confirmations included the required legend:  “On selling your shares, you many pay a sales charge. For the charge and other fees, see the prospectus.”   This is FINRA Case #2008015700701, February 2011.