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FINRA Fines Chase $1.7 Million and Orders Restitution to Customers for Unsuitable Sales of UITs and Floating-Rate Loan Funds

The Financial Industry Regulatory Authority (FINRA) has fined Chase Investment Services Corporation (Chase) $1.7 million and ordered it to pay more than $1.9 million to customers as restitution for losses caused by its recommendation of unsuitable unit investment trusts (UITs) and floating-rate loan funds.

A UIT is an investment which contains a diversified mix of securities which may include risky, speculative products like high-yield, below investment-grade “junk” bonds. Similarly, floating-rate loan funds are mutual funds that generally contain secured senior loans made to companies whose credit quality is rated below investment-grade.

FINRA’s investigation revealed that Chase’s brokers recommended and sold UITs and floating-rate loan funds to unsophisticated, risk-averse investors without having reasonable grounds to believe that the investments were suitable for the customers. In addition, FINRA found that Chase lacked the proper supervisory controls to oversee its brokers’ sales of UITs and floating-rate loan funds.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “With the growing number of complex products in the market today, it is incumbent upon firms to properly train and provide guidance to their brokers about the products that they sell and supervise the sales practices of their brokers.”

Chase consented to the entry of FINRA’s findings without admitting or denying the charges.

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