NYLIFE Securities Consents to FINRA Sanctions and Restitution to Resolve Allegations of Failing to Maintain a Supervisory Representatives’ Activity that Led to $1.4 Million in Losses for CustomersWednesday, December 4, 2019
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by NYLIFE Securities LLC, a FINRA member since 1970 that has 2,389 branch offices and 9,082 registered employees as of October 2019.
This AWC follows allegations made by FINRA claiming that between September 2014 and December 2016, NYLIFE Securities failed to enforce its written supervisory procedures (WSPs) relating to the suitability of sales of higher-risk and potentially volatile mutual funds. Specifically, FINRA claims that when sales led customer portfolios to be over-concentrated in higher-risk securities, NYLIFE Securities registered representatives were supposed to reallocate customers’ portfolio or work with the customer to change their risk tolerance and investment objectives to correspond with their assumption of additional risk. Although the firm had an automated surveillance system that would generate an alert if a customer’s holdings exceeded the concentration limits based on their investment objectives and risk tolerance, NYLIFE allegedly failed to enforce the written procedures allowing representatives to change investment portfolios without seeking the customers’ input. FINRA claims that the failure was partly due to the amount of alerts the reviewers and their supervisors had to take on, which did not allow them to properly investigate each alert that the automated surveillance system generated.
As a result, many representatives over-concentrated customer portfolios in higher-risk mutual funds, including the solicitation of non-diversified mutual funds that focused on the exploration, production, storage, transportation, processing, and use of energy and natural resources to approximately four dozen customers. At least two customers invested 80% of their liquid net worth and several other customers invested at least 35% of their liquid net worth. Oil prices saw a 75% decline shortly after NYLIFE Securities permitted the sales, which lead to $1.4 million in losses for the customers.
Based on the foregoing, NYLIFE Securities violated NASD Rule 3010(b) and FINRA Rules 3110(b) and 2010. Twenty-one customers filed complaints to the firm and received a total of $1.1 million in restitution before any regulator intervened. By signing the AWC, NYLFE Securities consented to a censure, a $250,000 fine, and ordered to pay $76,643.47, plus interest, in restitution to twenty-eight customers.
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