FINRA Orders RBC to Pay $1.1 Million Over Alleged Churning of Preferred Stock
From the desk of Jim Eccleston at Eccleston Law
The Financial Industry Regulatory Authority (FINRA) has ordered RBC Wealth Management to pay $1.1 million after the firm allegedly failed to adequately supervise numerous advisors’ sales of syndicate preferred stock.
FINRA alleged that at least 40 RBC advisors engaged in unsuitable short-term trading of syndicate preferred shares between January 2017 and December 2018, which often generated excessive commissions and resulted in losses for clients. According to the settlement, RBC’s supervisory system failed to flag the preferred stock sales because the firm “employed no alerts specific to preferred stock”, which violated FINRA’s rules requiring the use of a “reasonably designed” supervisory system.
While preferred stock is often held long-term due to consistent dividend payments, many of the RBC advisors recommended hundreds of short-term sales within 180 days of the client’s initial purchase. According to FINRA, these short-term sales often generated a 2% commission from the issuer as well as potential commission paid by the client. The $1.1 million penalty included a $300,000 fine, restitution of $128,643 in commissions to 251 clients as well as $653,313 in sales concessions from the issuer of the syndicate.
Eccleston Law LLC represents financial advisors and investors nationwide in securities, employment, transition, regulatory and disciplinary matters.
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