Oppenheimer Holdings beset by regulatory investigations

Firm sets aside more than $12 million in light of enforcement actions from the SEC, Finra and Treasury Department

Aug 5, 2014 @ 11:13 am

By Mason Braswell

Regulatory expenses cut into the bottom line at Oppenheimer Holdings Inc. as the firm said it had set aside more than $12 million in the second quarter in light of investigations by the SEC, Finra and the Treasury Department.

The firm's private client group, which has around 1,370 financial advisers, continues to face scrutiny over sales of penny stocks by several financial advisers from 2008 to 2010. Meanwhile, regulators have opened additional inquiries into sales of leveraged and inverse exchange-traded funds and potential lapses in supervision related to a former financial adviser, according to its most recent quarterly report.

As a result, Oppenheimer reported on Friday that its pretax profit had fallen to $7.6 million in the second quarter, a 51% decline compared with the same quarter of last year.

An outside spokesman for the firm, Stefan Prelog, said the firm declined to comment.

The $12 million charge stems primarily from the continued fallout from the sale of penny stocks by seven brokers in five branches from 2008 to 2010, the firm reported.

The brokers fraudulently traded over one billion shares of low- priced securities, according to an order issued by the Financial Industry Regulatory Authority Inc.

Last August, Oppenheimer paid $1.4 million to Finra to settle those allegations, but said that at least two SEC investigations from 2010 and 2011 had yet to be resolved.

The firm said it is expecting one or more enforcement actions to result in “significant charges against earnings” in the first quarter, in addition to the $12 million set aside last quarter.

In February, the Treasury Department Financial Crimes Enforcement Network, FinCEN, also sent a notice that it was investigating violations of the Bank Secrecy Act, which outlines anti-money-laundering requirements for financial firms.

With the additional $12 million set aside, Oppenheimer said it would be “fully reserved against potential liability arising out of the SEC and FinCEN matters.”

Separately, in May, Finra sent a separate Wells Notice to Oppenheimer asking the firm to explain why it should not be charged with failing to supervise a former financial adviser in addition to late Finra U4 and U5 filings and record retention.

The filing did not provide details about the broker.

In March, however, the SEC brought action for insider trading against a former Oppenheimer broker, Vladimir Eydelman, who had worked at the firm from 2011 to 2012 before joining Morgan Stanley. Although the firm was not named, the SEC said that Eydelman was able to make at least 11 insider trades after Oppenheimer's compliance department said it had begun looking into the matter.

Oppenheimer said at the time that it was continuing to cooperate with investigators and conduct its own probe into any lapses in supervision.

In a third matter, Oppenheimer said that for several quarters, Finra had been sending information requests regarding the sale of leveraged and inverse ETFs.

“Several Oppenheimer employees have provided on-the-record testimony in connection with the investigation,” the firm wrote in its earnings report. “Oppenheimer is continuing to cooperate with the investigating entities.”

The firm did not report setting aside funds specifically for either the rogue broker or ETF investigations.

Oppenheimer has faced similar inquiries prior to the $1.4 million Finra fine. In 2005, the firm paid fines totaling nearly $4.15 million to the New York Stock Exchange and FinCEN for alleged failures in the firm's anti-money-laundering program. The firm has made all settlements without admitting or denying the findings.


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