FINRA has announced sanctions against SunTrust Investment Services, Inc. for engaging "in a pattern of unsuitable short-term UIT, CEF and mutual fund transactions in accounts of 17 customers, most of whom were elderly and/or disabled." According to FINRA's announcement, SunTrust will be required to pay $1.44 million to resolve charges related to a pattern of unsuitable sale transactions. Of that amount, $900,000 is a fine that includes nearly $224,000 in disgorgement of commissions earned on the unsuitable trades. The remaining $540,000 represents restitution to 17 customers who incurred losses.
FINRA found that:
SunTrust, through two brokers in the firm's Maryland Region, engaged in a pattern of unsuitable short-term UIT, CEF and mutual fund transactions in accounts of 17 customers, most of whom were elderly and/or disabled. The brokers also engaged in unsuitable margin transactions in the accounts of 10 of the 17 customers. In addition, FINRA found that SunTrust failed to ensure that eligible customers received the maximum sales charge discount on UIT purchases and lacked adequate systems and procedures for monitoring and supervising UIT, CEF and margin transactions.
Between February 2004 and November 2006, SunTrust, through Bredenburg and, it is alleged, the second broker, recommended 294 unsuitable short-term UIT, CEF and mutual fund transactions in the accounts of 17 customers. The two brokers repeatedly recommended that the customers sell UITs and CEFs less than one year - and sometimes as soon as one month - after purchasing the securities at the broker's recommendation, with little or no economic benefit to the customer.
SunTrust, through the two brokers, recommended to 10 of those customers unsuitable purchases and sales of securities on margin - failing to adequately disclose the risks and costs of trading on margin and lacking a reasonable basis for their recommendations. As a result, the customers paid over $133,000 in margin interest.
SunTrust lacked adequate systems and procedures to monitor UIT and CEF transactions and margin accounts, and to ensure that customers purchasing UITs received applicable sales charge discounts.
Between February 2004 and December 2005, Mattran and SunTrust approved each short-term transaction, including transactions placed using margin, and did not respond adequately to red flags suggesting that the transactions were unsuitable. For example, the trade blotter listed over 200 sales of UITs and CEFs among the 17 customers' accounts and compliance reviews in August 2004 and April 2005 alerted Mattran and the firm to questionable short-term UIT and CEF transactions by both brokers.
Between August 2008 and February 2009, while registered with Merrill Lynch, Bredenburg accessed a customer's Merrill Lynch brokerage account through the internet and, without the customer's knowledge, transferred funds from the customer's account to pay Bredenburg's personal expenses, including mortgage, car loan and credit cards. Merrill Lynch has compensated firm customers affected by Bredenburg's misconduct.
The full text of FINRA's announcement is available at: http://www.finra.org/Newsroom/NewsReleases/2010/P121754