FINRA Fines Oppenheimer Over Lax Supervision of Client Transactions

The Financial Industry Regulatory Authority (FINRA) has censured and fined Oppenheimer & Co. Inc. $500,000 for failing to reasonably supervise thousands of direct business transactions made by the firm's brokers on behalf of clients between 2012 and 2017.

According to the self-regulatory organization, Oppenheimer failed to ensure that around 490,000 transactions placed directly with product sponsors for over 14,000 customers were captured on the firm's trade blotters and subjected to supervisory reviews.

The transactions in question, known as direct business or held-away transactions, bypassed Oppenheimer's normal order handling systems. As a result, the firm did not run exception reports designed to identify potential sales practice violations like unsuitable investments.

"Oppenheimer was on notice that certain representatives were engaging in these direct transactions when it received commission records from sponsors," FINRA stated. "Nonetheless, the firm lacked any system or procedures to require brokers to report those trades."

FINRA also cited Oppenheimer for failing to collect and maintain key customer profile information relevant for making suitability determinations on direct business accounts, such as investment time horizons, liquidity needs and risk tolerance.

While Oppenheimer neither admitted nor denied the findings, the firm consented to FINRA's sanctions of the $500,000 fine and a censure. The disciplinary action relates to violations of Securities Exchange Act rules, as well as FINRA's supervision, books and records, and conduct rules.

In settling, FINRA noted that starting in 2021, Oppenheimer conducted a retrospective review attempting to collect missing data and analyze the appropriateness of the held-away transactions, though suitability determinations were impaired by incomplete information.

The $500,000 penalty reflects FINRA's efforts to ensure members have reasonably designed supervisory systems to prevent and detect potential mis-selling and maintain accurate books and records, including for transactions occurring outside of the firm's normal business channels.

A spokesperson for Oppenheimer said the firm has enhanced its policies and procedures around direct business to strengthen oversight and compliance.

The disciplinary action is another example of FINRA's heightened scrutiny of wealth management firm's supervisory controls to protect retail investors. It follows other recent sanctions against regional brokerages for lax monitoring of outside business activities and private securities transactions.

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