The Financial Regulatory Authority Inc. (FINRA) reached $89 million in settlements with 56 brokerage firms that failed to give sales charge waivers and, as a result, overcharged certain clients for mutual funds going against the Mutual Fund Waiver Initiative. Among those affected were over 100,000 retirement and charitable accounts involved with selling Class A shares in exchange for price breaks.
History of Enforcement
In 2015, FINRA began the mutual fund waiver initiative and obtained settlement agreements with 10 brokerage firms that cooperated and self-reported mutual fund account discrepancies. The organization continued the initiative, applying sanctions to the firms found in violation.
Fines and Restitution Result of New Initiative
Due to the cooperation of 43 of the 56 firms targeted in FINRA’s mutual fund waiver investigation, they were not charged or ordered to pay any sanctions, but they did have to pay restitution to their clients. The remaining 13 firms, however, were fined $1.32 million along with restitution.
The final two settlements were announced with Western International Securities Inc., which agreed to pay $375k in restitution and $75k in civil penalties, and Park Avenue Securities, Inc., which agreed to pay $640k in restitution.
Goal of the Initiative
According to a former co-chief of the Securities and Exchange Commission Enforcement Division’s Asset Management Unit, FINRA’s crackdown on high-fee mutual fund accounts demonstrates its focus on minimizing potential financial harm to investors.
FINRA has announced, as an incentive to encourage cooperation, that investment firms that self-report may receive fewer penalties. This initiative works to help firms avoid fines and helps customers who lost money through high-fee mutual fund accounts to be made whole again.
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