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Regulatory Sanctions

WWW: Retail B/D Pays $498K for Selling Unsuitable UITs - FINRA

April 4, 2017
In this case, FINRA sanctioned the broker-dealer for actions taken by a broker and his principals. In a separate posting, Financialish discusses the FINRA's case against one of the supervisors. 


CUSO Financial Services, a general securities firm based in San Diego, CA, agreed to pay $173K in fines and restitution to settle FINRA charges that a registered rep (RR or broker) recommended and sold unsuitable unit investment trusts (UITs) to customers unit investment trusts (UITs). The firm had earlier provided $325K in restitution to customers – so the firm’s total cost in this matter totaled $498K.


ABOUT THE FIRM.   CUSO, a FINRA member since 1997, conducts a general securities business through its relationships with credit unions. Currently, the Firm has about 714 registered reps and over 950 branch offices located in credit unions across the country. CUSO does not have any prior disciplinary history.


FINRA’S SPECIFIC FINDINGS.    From January 2012 through August 2013, the RR solicited and sold to 50 customers 76 UITs that invested in closed-end mutual funds that employed leverage. The RR and his principals who approved the UIT transactions, failed to have a reasonable basis to recommend and approve the UIT transactions. Some of the customers were seniors, and some of these customers had low risk tolerances.


All told, the customers lost $443,000 of the $4.6 million invested.


While CUSO’s written supervisory procedures (WSPs) directed certain principals to review UIT transactions for suitability, the WSPs lacked concrete guidance to assist its brokers and principals in assessing the suitability of UITs that invest in closed-end funds and that might use leverage – e.g., no concrete guidance as to how a customer’s age, liquid net worth and asset concentration impacted the suitability determination for these riskier UITs.


This case was reported in FINRA Disciplinary Actions for March 2017.

For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2013039239102.