Finra Sanctions Ex-Oppenheimer Broker over UIT Trades
A former Oppenheimer & Co. broker in Tampa, Fla., has agreed to a three-month suspension from the securities industry and a $5,000 fine over allegations that he encouraged clients to excessively trade unit investment trusts to generate commissions.
Between July 2011 and December 2015, Engstrom recommended and helped execute early redemptions of about 1,000 UIT positions, half of which were rolled over into identical UITs of the same series, Finra said in a letter of acceptance, waiver and consent it accepted from the broker on Wednesday.
UITs meant to be held for 24 months typically carry sales charges of about 4.0% (including initial and deferred charges, and a product development fee), and premature rollovers can add an 2.95% sales charges for each switch, Finra said.
“Engstrom’s recommendations caused his customers to incur unnecessary sales charges, and were unsuitable in view of the frequency and cost of the transactions,” Finra wrote.
Oppenheimer reimbursed excess sales charges of $3.87 million to customers of Engstrom and other brokers as part of a December 2019 settlement in which it was fined $800,000 for failing to properly supervise UIT sales over five years.
Engstrom, who did not admit or deny the allegations, is not currently registered as a broker and could not be reached for comment. His Tampa-based lawyer, Peter B. King of Wiand Guerra King, did not immediately return a call for comment.
Oppenheimer “permitted” Engstrom to resign in October 2016 over allegations of unauthorized ETF trading, according to his BrokerCheck record. He commented on his regulatory record that the complaint was due to “a miscommunication,” adding that he had “resolved the matter to the client’s full satisfaction.”
Finra has brought numerous UIT sales violations against firms and brokers following a “sweep” examination focusing on rollover recommendations in 2016.
It fined Morgan Stanley $3.5 million and ordered it to reimburse customers almost $10 million to customers for failing to supervise UIT sales by hundreds of brokers from 2010 through mid-2014. Earlier this year, it censured independent broker-dealer Cambridge Investment Research and fined it $150,000 for ignoring alerts to supervisors about short-term trading in UITs.
The Securities and Exchange Commission also has focused on UITs. Raymond James Financial last year agreed to a $15 million settlement with the regulator for, among other allegation, overcharging customers more than $6 million for UIT trades. The firm in October 2018 terminated at least half a dozen brokers over short-term UIT trading allegations.
Engstrom worked for three-and-a-half years in a Pensacola office of St. Louis-based Stifel after his forced departure from Oppenheimer in October 2016. His BrokerCheck record has no disclosures about Stifel. He also worked at seven other firms, but the only other disclosure for which he was sanctioned involved the state of Florida’s charge that he was working without a license in 1996 because of a registration issue involving his then-employer, W.J. Gallagher & Co.