FINRA settles with Morgan Stanley for $13mn re UITs.
- Morgan Stanley charged re failure to supervise sale of unit investment trusts UIT.
- UIT is investment company offering portfolio units terminating on a specific date.
- Impose deferred sales charge and a creation and development fee, can be 3.95%.
- A representative who repeatedly recommends customer sell UIT before maturity,
and then “rolls over” funds into a new UIT causes a customer higher sale charges.
- Thus, short-term trading of UITs may be improper, and raises suitability concerns.
- In 2012-2015, hundreds of firm representatives executed short-term UIT rollovers.
- Including UITs over 100 days before maturity, for thousands of customer accounts.
- Firm failed to supervise representatives' sales, and provided insufficient guidance
on how supervisors review UIT trades, to detect any unsuitable short-term trading.
- Did not implement adequate systems to detect short-term UIT rollovers; failure to
provide supervisory review of rollover prior to execution in the trade entry system.
- Firm did not provide training to registered representatives on specific UIT features.
- Firm to pay $3.25mn fine and $9.78mn restitution to over 3,000 affected customers.