Troy, Michigan based Leonard & Company submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $250,000, and consented to the entry of Financial Industry Regulatory Authority (FINRA) findings that for more than two years, by and through its brokers, it affected numerous Inverse Floater Collateralized Mortgage Obligation (CMO) transactions to retail customers without having reasonable grounds for believing that the recommendations were suitable. According to FINRA, Leonard & Company provided little, if any, formal training regarding Inverse Floater CMOs to its brokers. Specifically, Leonard & Company's brief training program did not provide brokers with information about making a suitability determination for each customer and distinguishing between the Inverse Floater CMOs. FINRA's findings also included that Leonard & Company failed to provide adequate "point-of-sale" information to its brokers to enable them to make informed and appropriate recommendations to their customers and failed to ensure that its brokers understood the unique features and specific risks associated with each Inverse Floater CMO they recommended to their retail customers - neither Leonard & Company nor its brokers conducted an adequate investigation of each individual Inverse Floater CMO to ensure it was suitable for each individual retail customer. As a result, retail customers who lacked sophistication and/or did not have any prior experience investing in Inverse Floater CMOs were exposed to the risk of losing a significant portion of their investment without having a sufficient understanding of the risks they were undertaking.
FINRA's findings also stated that while the firm had written supervisory procedures (WSPs) addressing CMOs, it did not have any WSPs specifically addressing the suitability of Inverse Floater CMOs. Consequently, Leonard & Company's supervisory system and WSPs were inadequate to ensure appropriate supervision of sales of Inverse Floater CMOs to retail customers. Moreover, FINRA said Leonard & Company's WSPs also failed to provide specific guidelines that the firm and its supervisors could apply in reviewing the firm's fixed income group's process of identifying and selecting Inverse Floater CMOs that it then recommended and promoted to the firm's registered brokers for purchase and sale to retail customers. Furthermore, FINRA said Leonard & Company's WSPs also failed to provide adequate guidance to the firm's brokers and principals for reviewing and approving each recommended Inverse Floater CMO transaction in order to ensure suitability for retail customers.
Have you suffered losses in an inverse floater collateralized mortgage obligation or any other investment sold by Leonard & Company? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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