On November 15, the Financial Industry Regulatory Authority (FINRA) announced its decision to order Chase Investment Services Corporation to pay more than $1.9 million to customers who incurred losses because of Chase’s recommendation of unsuitable sales of UITs, or unit investment trusts, as well as floating-rate loan funds. In addition, Chase was fined $1.7 million for its actions.
According to the FINRA press release, “A UIT is an investment product that consists of a diversified basket of securities, which can include risky, speculative investments such as high-yield/below investment-grade or ‘junk’ bonds. Floating-rate loan funds are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade, or ‘junk.’”
The results of FINRA’s investigation concluded that the purchase of UITs and floating-rate loan funds was recommended by Chase brokers to “unsophisticated customers with little or no investment experience and conservative risk tolerances, without having reasonable grounds to believe that those products were suitable for the customers.” This is a clear violation of the suitability standard that brokers adhere to, which states that brokers must make recommendations that are suitable for their clients. In addition to this violation of the suitability standard, Chase did not have adequate supervisory procedures in place to monitor the sales of these investment products.
Chase’s brokers, who were not provided with sufficient guidance and training, made nearly 260 unsuitable recommendations involving the UITs. As a result, these customers lost around $1.4 million. Losses incurred by customers as a result of the unsuitable recommendations for the floating-rate loan funds amounted to almost $500,000.
WaMu Investments Inc., a firm that merged with Chase in 2009, also made unsuitable recommendations regarding the floating-rate loan funds and neglected to provide adequate training and supervision in regard to these sales.
As an investor, if you believe you were given an unsuitable recommendation — from any firm — to purchase UITs or floating-rate loan funds, and suffered losses as a result, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.