The Financial Industry Regulatory Authority closed a brief and well-publicized episode of cowboy capitalism at the start of May by sanctioning a number of big Wall Street brokerages for a total of $9.1 million for violating the regulator’s rules for improper sales of leveraged and inverse ETFs in 2008 and 2009.
Firms, including Morgan Stanley, Citigroup, UBS AG and Wells Fargo & Co., were fined more than $7.3 million and must pay a total of $1.8 million in restitution to certain customers who made unsuitable purchases of leveraged and inverse ETFs, FINRA said in a May press release. Such ETFs now account for about 2.5 percent of the $1.208 trillion in U.S.-listed ETF assets.
The representatives in question also failed to properly supervise the investments once they were made, FINRA said. It also said the banks failed to establish formal training programs to teach brokers about the ETFs. Still, the regulator said that, on balance, the damage done was slight and that despite the violations, investors weren’t significantly harmed.
Further, FINRA officials stressed that the fines only apply to violations that occurred from January 2008 to June 2009, and the regulator went out of its way to say that the brokerage houses have reformed their practices.