Jones Low-Balled Customer Damage Claims, Citi Overcharged for UITs—Finra
The Financial Industry Regulatory Authority fined and censured Edward D. Jones & Co. for allegedly underreporting customer damage claim amounts, and sanctioned Citigroup for overcharging customers on unit investment trusts, according to letters of acceptance, waiver and consent published on Thursday.Edward Jones, the largest U.S. broker-dealer by headcount, agreed to pay $40,000 to settle charges it misreported on brokers’ U4 forms damages claimed by 79 customers made against individual brokers in a two-year period ending in March 2018.
Jones reported to Finra in 114 cases that it could not determine whether complaints met the minimum damage reporting requirement of $5,000. In one of those cases, a customer sought $93,139 for allegedly excessive sales of securities and in another a customer asked for $630,000 for allegedly excessive fees and sales charges, the settlement letter said.
Finra uses complaint amounts to help determine whether and how to investigate incidents, according to the settlement letter, which Jones accepted without admitting or denying the allegations.
The U4 inaccuracies resulted from a “misunderstanding by certain of Edward Jones’ associates” about the applicable disclosure requirements, according to the consent letter. Edward Jones promptly updated the forms when Finra identified the problems, provided additional training to associates and put in place additional “safeguards” for its process of disclosing customer complaints, the letter said.
“We’re pleased the matter has been resolved,” Jones spokesman John Boul said in an email.
Separately, Citigroup Global Markets agreed to pay more than $377,000 in fines and restitution for overcharging and failing to supervise sales of unit investment trusts over a six-year period ending in February 2017.
The broker-dealer failed to apply discounts to eligible customers on 594 UIT purchases that would have saved them $152,489, according to the acceptance, waiver and consent letter that Citi signed Thursday. As with the Jones findings, Finra said the behavior violated its Rule 2010 requiring member firms to observe high standards of commercial honor and just and equitable principles of trade.
Citi also violated the self-regulatory group’s Rule 3110 that requires Finra member firms to establish and maintain effective supervisory systems.
Citi’s system determined breakpoint discounts for UIT buyers based on sales volume, but failed to credit rollover discounts, according to Finra. Its post-trade surveillance system identified short-term mutual fund trades but not patterns in trading of UITs, which are portfolios of securities designed for buy-and-hold investors, according to the consent letter.
Citi agreed to a censure, a fine of $225,000 and restitution of $152,489 plus interest.
UITs accounted for about 1% of Citi’s retail business in the six-year period under review, Finra said. The regulator considered the relatively small contribution of the business in determining its sanctions as well as the fact that no customers were actually harmed by the failure to identify short-term UIT trades, according to the consent letter.
Finra has been imposing fines for UIT sales violations against large and small firms following targeted exams begun in 2016 that focused on written supervisory procedures, exception trading reports and early rollover transactions.
Raymond James Financial in October is believed to have terminated as many as half a dozen advisors over allegations of unsuitable Unit Investment Trust sales, and several Morgan Stanley brokers have faced fines and suspensions over short-term UIT trading recommendations.