Syracuse-based independent broker/dealer Cadaret, Grant & Co., which was recently acquired by Atria Wealth Solutions, has been censured by the Securities and Exchange Commission and ordered to pay disbursement to investors who were sold an unsuitable leveraged oil-linked exchange traded note.
At the same time, the Financial Industry Regulatory Authority has also settled with the firm over failure to adequately oversee the sales of variable annuities. In the FINRA matter, the firm agreed to pay an $800,000 fine.
The SEC claims the firm, along with President Arthur Grant and Senior Vice President Beda Lee Johnson, failed to adequately supervise reps who sold the VelocityShares 3X Long Crude Oil exchange traded notes between January 2015 and December 2016, betting that oil prices would recover during that period. Eugene Long, one advisor who sold much of it, was charged and ordered to pay a $250,000 penalty. The charges predate the acquisition by Atria Wealth Solutions.
“We are always committed to ensuring that Cadaret, Grant fully complies with its regulatory obligations,” Grant said in an emailed statement. “Many of the allegations in these cases relate to conduct that occurred several years ago, and we have already taken significant steps to address the issues discussed in the SEC and FINRA matters to ensure they do not occur again. In addition, pursuant to the settled orders, Cadaret, Grant has retained a compliance consulting firm with extensive experience in similar matters to identify and implement additional enhancements to our compliance program. We look forward to working with the consulting firm on adopting these enhancements.”
The firm agreed to pay the SEC a $500,000 fine plus $13,000 in disgorgement and interest. Grant and Johnson were also suspended from supervising registered representatives for 12 months.
The SEC claims brokers recommended the ETN to clients without knowing the risks associated with such an investment, including that it wasn’t meant to be held for more than one day.
“The brokers mistakenly believed the ETN’s value would increase over time as oil prices increased even though the ETN offered no direct exposure to spot oil prices, and recommended that retail customers buy and hold the ETN indefinitely,” the SEC said.
Long, for example, had his clients in the investment for more than a year, and they suffered an average loss of more than 90 percent of the amounts invested.
In the FINRA matter, the firm was cited for failing to adequately oversee the suitability of the investment products it was selling from 2012 to 2017. FINRA noted that during the period in question, the firm employed just three individuals to review the securities transactions of more than 676 representatives working from more than 450 branch locations. FINRA said the firm failed to ensure that its reps understood the differences in share classes and associated fees of the variable annuities they were selling.
In April, Atria Wealth Solutions, the private equity-backed wealth management holding company launched by former Morgan Stanley executive Doug Ketterer, announced its acquisition of Cadaret, Grant & Co., which has about 900 advisors and more than $23 billion in assets under administration. The deal, part of Atria’s strategy to do business in multiple advisor channels, brings the firm into the independent advisor space. Grant was expected to stay on in an advisory role to Ketterer.