Cetera fined $1.4 million for award-winning broker's excessive trades

Firm awarded broker sales awards, despite mutual-fund churning flagged to home office, according to Finra.

Dec 20, 2018 @ 4:13 pm

By Greg Iacurci

Cetera Advisor Networks must pay nearly $1.4 million in fines and restitution in relation to the short-term mutual fund purchases of a former broker, who'd received sales awards from the broker-dealer for two consecutive years.

The Financial Industry Regulatory Authority Inc., the brokerage industry's regulator, fined Cetera Advisor Networks $700,000 and ordered $691,800 in customer restitution in connection with the excessive trades, known as "churning" in the industry.

(More: Finra proposes to widen net for churning violations)

The broker, who's unidentified aside from the initials MK, made hundreds of short-term purchases and sales of A-share mutual funds in the accounts of 14 customers, some of them seniors, according to Finra. Customers were charged new front-end commissions with each trade, enriching the broker and the firm, but lost clients nearly $700,000 over a six-year period, the regulator said.

Further, Finra said the broker — who was barred from the securities industry in 2017 for failing to cooperate in a Finra investigation of his conduct — tried to "mask" the mutual-fund churning via stock trading between mutual fund sales and purchases.

The regulator said Cetera Advisor Networks, which is one of the firms in the Cetera Financial Group broker-dealer network, failed to respond reasonably to "red flags" associated with the broker's conduct between 2009 and 2015. The broker worked from his home in Chadds Ford, Penn., and was supervised from a Pennsylvania branch office.

(More: Beware: Regulators won't take excuses for reverse-churning)

In fact, the broker received sales awards in 2013 and 2014 from Cetera Advisor Networks, even after his designated supervisors had flagged the excessive trading to the home office. The firm only took action against the broker, in February 2015, after Finra began an investigation following an outside tip, Finra said in a letter of acceptance, waiver and consent outlining the penalty.

Cetera Advisor Networks neither admitted nor denied Finra's claims.

"Cetera is committed to meeting all of our regulatory obligations and helping our advisors service their clients with the highest of ethical standards," Cetera spokeswoman Adriana Senior said.

The firm has around 3,400 brokers and 1,400 branch offices.


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