The Financial Industry Regulatory Authority Thursday ordered SunTrust Investment Services, Inc. of Atlanta, GA, to pay $1.44 million for making trades on behalf of customers that were not suitable for them.
FINRA found that SunTrust, through two brokers in its Maryland region, engaged in a pattern of unsuitable short-term investments in unit investment trust, closed-end fund and mutual fund transactions. The unsuitable trades were made in accounts of 17 customers, FINRA said, most of whom were elderly and/or disabled.
The brokers engaged in unsuitable margin transactions in the accounts of 10 of the 17 customers.
In addition, FINRA found that SunTrust failed to ensure that eligible customers received the maximum sales charge discount on some purchases and lacked adequate systems and procedures for monitoring and supervising the unit investment trust, closed-end fund and margin transactions.
Ann Kimsey, director of compliance at SunTrust Bank in Atlanta, which operates the investment services business, could not be reached for immediate comment.
Of the $1.44 million, $900,000 is a fine that includes nearly $224,000 in disgorgement of commissions earned on the unsuitable trades, FINRA said. The remaining $540,000 represents restitution to 17 customers who incurred losses.
As part of the settlement, SunTrust must also review all UIT purchases and provide remediation to all eligible customers who did not receive the maximum sales charge discount.
"Firms must monitor for patterns of UIT and closed-end fund sales to ensure that such sales are suitable for the customer," said James S. Shorris, FINRA EVP and acting chief of enforcement. "SunTrust failed to meet that obligation, which caused its customers, including elderly customers, to incur significant losses."
FINRA previously sanctioned one of the individual brokers involved in this matter, David Bredenburg of Timonium, Md. He was permanently barred from working in the securities industry.
FINRA has filed a complaint against the second broker, charging him with numerous violations, including unsuitable recommendations, sales and use of margin; failure to provide maximum sales charge discounts on UIT transactions; and, engaging in discretionary trading in customer accounts without written authorization.
FINRA also suspended the two brokers' former supervisor, Donald Mattran of Bel Air, Md., for six months in any principal capacity and fined him $10,000.
FINRA found that between February 2004 and November 2006, SunTrust - through Bredenburg and, it is alleged, the second broker - recommended 294 unsuitable short-term UIT, CEF and mutual fund transactions in the accounts of the 17 customers. The two brokers repeatedly recommended that the customers sell UITs and CEFs less than one year – and sometimes as soon as one month – after purchasing the securities at the broker's recommendation, with little or no economic benefit to the customer.
FINRA further found that SunTrust, through the two brokers, recommended to 10 of those customers unsuitable purchases and sales of securities on margin – failing to adequately disclose the risks and costs of trading on margin and lacking a reasonable basis for their recommendations. As a result, the customers paid over $133,000 in margin interest.
FINRA also found that SunTrust lacked adequate systems and procedures to monitor UIT and CEF transactions and margin accounts, and to ensure that customers purchasing UITs received applicable sales charge discounts.