On March, 30, 2015, H. Beck Inc. (“H. Beck”) submitted a Letter of Acceptance Waiver, and Consent (“AWC”) to settle allegations of sales practice violations by the Financial Industry Regulatory Authority (“FINRA”). FINRA alleged that: 1) H. Beck failed to establish a reasonable supervisory system and written supervisory procedures to identify and apply applicable unit investment trust (“UIT”) sales charge discounts to customers; 2) H. Beck failed to reasonably supervise its registered representatives’ use of consolidated reports; and 3) H. Beck failed to enforce its written supervisory procedures regarding its non-registered representatives’ use of outside email accounts. Without admitting or denying the facts alleged in the AWC, H. Beck submitted to censure and paid civil fines of $ 425,000 to settle the FINRA allegations. A full version of the FINRA AWC may be found here.
A UIT is a type of investment company that issues securities representing an undivided interest in a portfolio of securities. UITS are usually issued by a sponsor that assembles the portfolio of securities, deposits the securities in a trust, and then sells units through a public offering. Each UIT unit is a redeemable security that is issued for a specific term and entitles the investor to a proportionate share of the UIT’s net assets. The UIT sponsor usually offers a variety of different ways for investors to reduce the sales charges for their purchases, such as offering a discount on purchases that are funded from Redemption proceeds from another UIT.
In the AWC, FINRA noted that on March 31, 2004, FINRA reminded its members of their obligation to develop written supervisory procedures to ensure that customers receive the appropriate sales charge discounts for their UIT investments. See NTM 04-26, Unit Investment Trust Sales. FINRA’s guidance instructs its members to make sure that UIT transactions take place “on the most advantageous terms available to the customer.” Specifically, the AWC alleges that, in violation of NASD Conduct Rule 2110 and FINRA Rule 2010, from October 2008 through September 2013, H. Beck failed to give customers discounts for approximately $ 23 million of UIT investments purchase. Additionally, for its failure to implement written supervisory procedure reasonably designed to ensure that customers received sales charge discounts, FINRA alleged that H. Beck violated NASD Conduct Rules 3010(a)-(b) and 2110, as well as FINRA Rule 2010.