FINRA Orders SunTrust Investment Services to Pay $1.44 Million for Unsuitable UIT, Closed-End Fund and Mutual Fund Transactions
Sanction Includes $540,000 in Restitution to Disadvantaged Customers; Broker Barred in Separate Action, Former Branch Manager Suspended
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered SunTrust Investment Services, Inc. of Atlanta, GA, to pay $1.44 million to resolve charges related to unsuitable unit investment trust (UIT), closed-end fund (CEF) and mutual fund 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.
As part of this settlement, SunTrust must also review all UIT purchases and provide remediation to all eligible customers who did not receive the maximum sales charge discount.
“Firms must monitor for patterns of UIT and closed-end fund sales to ensure that such sales are suitable for the customer,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “SunTrust failed to meet that obligation, which caused its customers, including elderly customers, to incur significant 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.
FINRA previously sanctioned one of the individual brokers involved in this matter, David Bredenburg of Timonium, MD, permanently barring him from working in the securities industry. FINRA has filed a complaint against the second broker, charging him with numerous violations, including unsuitable recommendations, sales and use of margin; failure to provide maximum sales charge discounts on UIT transactions; and, engaging in discretionary trading in customer accounts without written authorization. FINRA also suspended the two brokers’ former supervisor, Donald Mattran of Bel Air, MD, for six months in any principal capacity and fined him $10,000.
FINRA found that 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.
FINRA further found that 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.
FINRA also found that 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.
Furthermore, FINRA found that 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.
FINRA’s action barring Bredenburg found that between February 2004 and March 2009 – while he was registered first with SunTrust and later with Merrill Lynch – Bredenburg recommended at least 167 unsuitable short-term UIT and CEF transactions, including switches, to 13 customers who were elderly, retired or disabled and who had conservative to moderate investment profiles. He also recommended unsuitable transactions on margin and unsuitable variable annuity liquidations. FINRA further found that Bredenburg failed to disclose to customers the costs and fees associated with short-term CEF and UIT transactions, failed to ensure that customers received maximum sales charge discounts on UIT purchases and engaged in discretionary trading without prior written authorization.
In addition, FINRA found that 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.
In concluding these settlements, SunTrust, Bredenburg and Mattran neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. FINRA’s charges against the second broker alleged to be involved are pending.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2009, members of the public used this service to conduct 18.5 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.