Ex-Morgan Stanley Broker in Hot Water over UIT ‘Rollovers’
When it comes to instruments such as unit investment trusts that are designed to be held until maturity, regulators are stepping up the pressure on firms and brokers who abuse the products.
In the latest instance, the Financial Industry Regulatory Authority on Tuesday said it suspended veteran Colorado Springs-based broker Elaine LaCerte for six months for recommending sales of UITs to 107 customer accounts well before their maturity dates.
The majority of the packaged investment products carried sales charges of 1.95% to 3.95%, but LaCerte accepted Finra’s enforcement findings that in an 18-month period ending in December 2014 she recommended selling the UITs less than a year after they were purchased. She recommended more than 100 times that customers use the proceeds to purchase another UIT with identical investment objectives, according to the acceptance, waiver and consent letter from LaCerte that Finra accepted and posted on its enforcement website this week.
LaCerte had worked for Morgan Stanley and predecessor firms Smith Barner and Dean Witter since 1995, but left the firm last summer, according to her BrokerCheck history. The database has no record of why she left, but two weeks after her registration with Morgan Stanley lapsed on August 11, the firm reached settlements of almost $28,500 with two customers who alleged unsuitable UIT recommendations.
LaCerte, who is not currently registered as a broker or financial adviser, commented on BrokerCheck that the settlements were made without her “input” and that the claims were “unwarranted.” She could not be reached for further comment on Wednesday because numbers publicly listed for her in Colorado were out of service.
A Morgan Stanley spokeswoman declined to comment on the circumstances of her departure or on whether the firm or any other individuals have been investigated for UIT sales oversight lapses.
Finra last September opened a sweep investigation of UIT sales in which it asked an undisclosed number of broker-dealers to provide data, including lists of the 25 brokers who generated the highest number of “early rollover” UIT transactions and generated the most revenue from the trades at firms being investigated.
It also sought customer account lists and purchase-and-sale blotters of the top 10 brokers generating such trades in the review period that extends from the beginning of 2014 through June 30, 2016.
Finra has not issued a follow-up report on its targeted exams, but cited UIT rollovers as a regulatory and examination priority for 2017.