SEC FINES BROKER-DEALER FOR EARLY RESALES OF STRUCTURED NOTES -

On June 25, 2018, the SEC announced that a broker-dealer settled charges relating to inappropriate resales of structured notes. The SEC determined that the broker had generated large fees by encouraging retail investors to actively trade these notes, even though they were designed to be held to maturity. In these situations, the broker recommended to retail investors that they sell their outstanding notes, and reinvest them in new notes. This activity generated significant fees for the broker, but reduced the customers’ investment returns.

The SEC determined that the broker’s representatives did not reasonably investigate or understand the costs of these recommendations. The SEC also determined that the broker’s supervisory personnel routinely approved these transactions, even though the broker maintained internal policies that prohibited this form of short-term trading.