FINRA Orders Osaic Unit to Pay Over $5 Million for Misleading Bank Deposit Program Disclosures
From the desk of Jim Eccleston at Eccleston Law
The Financial Regulatory Authority (FINRA) ordered independent broker-dealer Osaic and its acquired firm, American Portfolios Financial Services, to pay more than $5 million after finding that American Portfolios misled customers about how it calculated fees in its bank deposit program.
According to a December 29 FINRA Acceptance, Waiver and Consent (AWC) letter, American Portfolios agreed to pay more than $4.6 million in restitution and a $550,000 fine. AdvisorHub reports that Osaic acquired American Portfolios in November 2022.
AdvisorHub reports that the enforcement action focused on American Portfolios’ bank deposit program, which swept uninvested client cash into interest-bearing accounts at third-party banks. From April 2018 through September 2022, the firm told customers that it calculated its fee using a formula tied to the Federal Funds Target rate.
FINRA found that the firm instead set client yields by referencing competitors’ rates and retained the remaining interest it received from participating banks. FINRA determined that this practice caused American Portfolios to collect more than $3 million in excess fees compared to what it would have earned under its disclosed formula. The regulator also found that the firm retained an additional $1.25 million in surplus interest when interest rate changes resulted in participating banks paying more interest than the combined amounts allocated to firm fees, administrative fees, and customer interest. According to AdvisorHub, FINRA stated that American Portfolios did not disclose to customers that it would retain this surplus interest.
FINRA further concluded that American Portfolios lacked a reasonable supervisory system for its bank deposit program, including written supervisory procedures designed to ensure accurate and complete disclosures to customers. American Portfolios accepted the sanctions without admitting or denying FINRA’s findings. Approximately 85,000 customers participated in the sweep program during the relevant period.
FINRA noted that American Portfolios disclosed the underpayments to the regulator in October 2022 and began applying the correct fee formula at that time. The settlement also credited Osaic with providing substantial assistance in calculating restitution and beginning customer repayments before FINRA finalized the resolution.
Osaic did not respond to a request for comment. Earlier in December, FINRA ordered Osaic to pay $3 million over allegations that its Securities America subsidiary failed to properly supervise Class A mutual fund transactions, as reported by AdvisorHub.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, finra, osaic
