Regulatory Outlook | 06.16.22
In First Reg BI Action, SEC Hits BD Over L Bond Sales to Retirees
The U.S. Securities and Exchange Commission (SEC) took its first substantive enforcement action involving Regulation Best Interest when it charged a brokerage and five of its registered representatives with inappropriate sales of an unrated, risky debt security to retail customers. The SEC filed a complaint in a U.S. District Court in the Central District of California against Western International Securities and the five brokers, alleging that between July 2020 and April 2021, the defendants recommended and sold approximately $13.3 million in corporate L Bonds. The brokers each received aggregate commissions of between $5,400 and $32,500, while the firm received approximately $187,000 in commission and fees. The bonds were “high risk, illiquid and only suitable for customers with substantial financial resources,” the SEC complaint states. But the brokers sold the bonds to many customers who had moderate risk tolerances, little investment experience and limited liquid net worth and who were on fixed incomes or retired.
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