Under a settlement with the Financial Industry Regulatory Authority, Oppenheimer & Co. will be penalized for sending clients statements that misidentified collateralized mortgage obligations.
According to a ThinkAdvisor report, Oppenheimer agreed to a $250,000 and a censure in the matter.
“From at least January 2006 to the present, Oppenheimer sent an estimated 167,000 account statements to more than 800 customers that misidentified collateralized mortgage obligations (CMOs) issued by private·entities (private label CMOs) as government agency bonds or corporate bonds,” FINRA’s order stated. “By making misleading statements in communications with customers, the firm violated NASO Rules 221 0(d)(l) and 2110 and FINRA Rules 2210(d)(l) and 2010. The firm also violated NASO Rules 3110 and 2110 and FINRA Rules 4511 and 2010 by maintaining inaccurate customer account statements.”
During the same period, FINRA found that Oppenheimer failed to reasonably supervise the content of account statements that it sent to customers.
“Oppenheimer generated and sent to customers account statements that categorized the holdings in the customers’ accounts under various headings, including ‘Common Stock,’ ‘Fixed Income,’ and ‘Mutual Funds,'” the order states.
From at least January 2006 through January 2024, “Oppenheimer generated and sent an estimated 150,000 account statements to more than 800 customers that miscategorized all private label CMOs in each customer’s account under the heading ‘Government Agency Bonds,” the order continues.
This classification was inaccurate and misleading because it suggested that the CMOs were guaranteed by the U.S. government or a government-sponsored entity, FINRA stated.
After being advised by FINRA of the inaccuracies, it was reported that Oppenheimer made an effort to address the issue by changing the categorization of private label CMOs in customer account statements from “Government Agency Bonds” to “Corporate Bonds.”
Regulators said that since January 2024, Oppenheimer has sent an estimated 17,000 account statements to customers that categorized private label CMOs as corporate bonds but the characterization was not correct because of several differences between private label CMOs and corporate bonds.
“For example, unlike corporate bonds, which are debt obligations of corporations subject to default risk, CMOs are backed by pools of mortgages with varying maturities and prepayment risks (i.e., risk of repayment of principal prior to maturity),” FINRA states.
The order adds that from January 2006 to the present, Oppenheimer did not have a reasonable system to supervise the accuracy of information presented in customer account statements because it failed to review whether customer holdings were accurately categorized.
FINRA noted that a CMO is a type of mortgage-backed security that is collateralized by a pool of mortgages. The principal and interest from the mortgages underlying the CMO are used to pay investors’ principal and/or interest, depending on the type or tranche of CMO owned.
Oppenheimer accepted the findings without admitting or denying them. A firm spokesperson did not respond to a request for comment.
FINRA Rule 2210 and its predecessor, NASO Rule 2210, address FINRA member communications with the public and include content standards that apply to all member firm communications.
FINRA Rule 221 0(d)(l)(B), like its predecessor NASO Rule 2210( d)( 1 )(B), states that no member may make any false, exaggerated, unwarranted, promissory, or misleading statement or claim in any communication or publish, circulate, or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading. Account statements sent to customers are member communications subject to the content requirements of FINRA Rule 2210 and NASO Rule 2210.
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