Crown Capital Securities Fined for Failing to Establish and Maintain Supervisory Procedures
Crown Capital in Orange, California, submitted a Letter of Acceptance, Waiver, and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which the firm was censured and fined $75,000 for allegedly failing to establish and maintain a supervisory system, including written supervisory procedures, for reviewing and monitoring mutual fund switches conducted by representatives in violation of NASD Rule 3010(a), NASD Rule 3010(b), and FINRA Rule 2010. Crown Capital is a dually registered broker-dealer and investment advisor and has been a member of FINRA since July 5, 1999. According to the FINRA findings, Crown Capital had no supervisory mechanism in place and relied upon the registered representative to alert the firm of a mutual fund switch, which two representatives failed to do. The findings stated that one representative effected 61 short-term mutual fund switch transactions in a customer’s accounts which resulted in unnecessary front-end sales loads of between 3.75 and 5.75% with each new purchase and losses of approximately $5,000. During the same period, the other representative effected 49 Class A and two non-Class A short-term mutual fund switch transactions for four customers which also resulted in paid front-end sales loads of between 3.75 and 5.75% with each new purchase and losses of approximately $390,000. In addition to the findings, Crown Capital voluntarily compensated the customers who sustained losses due to the unsuitable recommendations, paying a total of approximately $395,000 in restitution.
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