FINRA recently fined two firms a total of $175,000 for inadequate disclosures on customer UIT purchases - Citigroup Global Markets ($25K) and Van Kampen Funds ($150K).  Last week, you'll recall we reported that Chase Investment Services and Cadaret, Grant were fined a total of $225,000 for overcharging customers on UIT transactions.

        Citigroup Global Markets Inc., New York, NY.   Agreed to pay a $25K fine and amend its Unit Investment Trust confirmations to include a disclosure concerning deferred sales charges and to have a firm officer notify FINRA in writing that it has amended its UIT confirmations.  This settled FINRA charges the firm sold UITs that imposed a deferred sales charge without disclosing that the UITs were subject to a deferred sales charge on its confirmations as NASD Rule 2830(n) required.  The rule provides that purchase confirmations of investment company products in which a deferred sales charge is imposed on redemption include the legend: “On selling your shares, you may pay a sales charge.  For the charge and other fees, see the prospectus.”  The required disclosure was missing from more than 250,000 confirmations.  This is FINRA Case #2008015701201.

        Van Kampen Funds Inc., Houston, TX.    Agreed to pay a $150K fine.  This settled FINRA charges the firm did not inform investors purchasing UITs through its in-kind exchange program the manner in which discounted sales charges would be assessed.  FINRA found that investors could have reasonably concluded from written disclosures the firm prepared that they were eligible to receive certain sales change discounts - exchange or volume discounts - when, in fact, neither option applied to in-kind exchanges.  In a number of instances, investors paid more by receiving the NAV (net asset value) price instead of an exchange discount.  FINRA also found that different UIT series offered the in-kind exchange, and in some, the in-kind exchange investors paid a higher per unit price than the exchange investors.  In others, the in-kind exchange investors paid a lower price than the exchange investors. 

FINRA notes the firm took the following positive steps:  (i) it paid out about $200,000 in remediation, including interest, to customers who paid more than the exchange discount described in the prospectus.  FINRA also noted that the firm prospectuses were revised fully and accurately.   This is FINRA Case #2009020770801.   [FINRA Disciplinary Actions for March 2011]