Cadaret, Grant works on interal improvements after SEC fines

SYRACUSE — Syracuse–based Cadaret, Grant & Co. Inc. is working on internal measures after the U.S. Securities and Exchange Commission (SEC) slapped it with fines for providing an investment recommendation “without a reasonable basis”.

The firm, two of its top officials, and a broker were all fined.

The SEC found that Cadaret Grant; its president, Arthur Grant; and senior VP Beda Lee Johnson “failed reasonably” to supervise the firm’s representatives who had recommended that customers buy and hold a leveraged oil-linked ETN “without a reasonable basis.” 

“I’m just so sorry that this came about,” Grant told CNYBJ in a brief telephone interview Sept. 14.

Cadaret, Grant is prohibited from commenting further on the details of its settlement with the SEC, he said.

In a Sept. 11 news release, the SEC said it had “obtained monetary relief” to reimburse investors for losses on a leveraged oil-linked exchange-traded note (ETN) the registered representatives with Cadaret, Grant had “recommended without a reasonable basis.”

Without admitting or denying the SEC’s findings, Cadaret, Grant agreed to be censured and pay a $500,000 penalty plus $13,194 in disgorgement and interest. 

Grant and Johnson each agreed to a 12-month supervisory suspension and will pay penalties of $100,000 and $75,000 respectively, the SEC said. 

In addition, Cadaret, Grant broker Eugene Long agreed to be censured and pay a $250,000 penalty, per the release. 

The penalties, disgorgement, and interest amounts paid will be placed in a “Fair Fund” that will “reimburse harmed investors for their incurred losses, plus reasonable interest.”

When asked what steps the firm is taking to prevent future SEC fines, Grant says Cadaret, Grant has added people to its compliance department and signed a contract with an independent compliance consultant. Both are SEC requirements, he notes.

Grant couldn’t talk about the settlement but the financial-industry veteran did say he’s “in favor of all that the SEC and FINRA do to make this a better industry.” FINRA is the Washington, D.C.–based Financial Industry Regulatory Authority. 

“As the years went by, I realized regulation is what gives investors the confidence to invest … The intention of the SEC and FINRA is good and it helps us from a business point of view if investors have confidence that there’s a watchdog looking over things,” says Grant.

Cadaret, Grant statement

Cadaret, Grant on Sept. 14 forwarded the following statement to CNYBJ in reaction to the SEC order.

“The Securities and Exchange Commission (SEC) issued a settled order against Cadaret, Grant containing findings regarding certain types of Exchange Traded Funds (ETFs) that the firm no longer sells to clients. Art Grant and Beda Lee (BJ) Johnson will pay a fine and received sanctions. Cadaret, Grant and a Cadaret, Grant advisor will also pay a fine. FINRA has simultaneously issued a settlement against Cadaret, Grant that pertains to some of the same items that were covered in the SEC order. All of the parties entered into the SEC settlements, and Cadaret, Grant entered into the FINRA settlement, without admitting or denying any of the allegations against them,” the firm said.

The Syracuse firm’s statement continued, saying, “Cadaret, Grant is committed to ensuring that we fully comply with our regulatory obligations. 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.”

Background

The SEC order found that before recommending the investment, the brokers did not take steps to “reasonably research or understand inherent risks” of the ETN or the index it tracked. According to the order, the ETN was meant to be a daily trading tool for sophisticated investors and was not designed 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 order also finds that Cadaret Grant “failed to adopt and implement” policies and procedures concerning the sale of exchange-traded products in investment-advisory accounts.

Besides the fines and suspensions for Grant and Johnson, the SEC charged Long, the Cadaret Grant broker who recommended the ETN to the “greatest number” of customers, for recommending the ETN “without a reasonable basis.”

The order found that Long recommended his customers continue to hold the ETN from 2015 and until spring 2016, when his customers’ holdings were sold at an average loss of more than 90 percent of the amounts they invested.

“Brokers have an obligation to understand complex products and their risks before recommending them to customers,” Daniel Michael, chief of the SEC enforcement division’s complex financial-instruments unit, said in the SEC release. “As this action shows, we will continue to hold people accountable at every level for unsuitable recommendations that harm investors and for the failures that allow those recommendations to be made unchecked.”

SYRACUSE — Syracuse–based Cadaret, Grant & Co. Inc. is working on internal measures after the U.S. Securities and Exchange Commission (SEC) slapped it with fines for providing an investment recommendation “without a reasonable basis”.

The firm, two of its top officials, and a broker were all fined.

The SEC found that Cadaret Grant; its president, Arthur Grant; and senior VP Beda Lee Johnson “failed reasonably” to supervise the firm’s representatives who had recommended that customers buy and hold a leveraged oil-linked ETN “without a reasonable basis.” 

“I’m just so sorry that this came about,” Grant told CNYBJ in a brief telephone interview Sept. 14.

Cadaret, Grant is prohibited from commenting further on the details of its settlement with the SEC, he said.

In a Sept. 11 news release, the SEC said it had “obtained monetary relief” to reimburse investors for losses on a leveraged oil-linked exchange-traded note (ETN) the registered representatives with Cadaret, Grant had “recommended without a reasonable basis.”

Without admitting or denying the SEC’s findings, Cadaret, Grant agreed to be censured and pay a $500,000 penalty plus $13,194 in disgorgement and interest. 

Grant and Johnson each agreed to a 12-month supervisory suspension and will pay penalties of $100,000 and $75,000 respectively, the SEC said. 

In addition, Cadaret, Grant broker Eugene Long agreed to be censured and pay a $250,000 penalty, per the release. 

The penalties, disgorgement, and interest amounts paid will be placed in a “Fair Fund” that will “reimburse harmed investors for their incurred losses, plus reasonable interest.”

When asked what steps the firm is taking to prevent future SEC fines, Grant says Cadaret, Grant has added people to its compliance department and signed a contract with an independent compliance consultant. Both are SEC requirements, he notes.

Grant couldn’t talk about the settlement but the financial-industry veteran did say he’s “in favor of all that the SEC and FINRA do to make this a better industry.” FINRA is the Washington, D.C.–based Financial Industry Regulatory Authority. 

“As the years went by, I realized regulation is what gives investors the confidence to invest … The intention of the SEC and FINRA is good and it helps us from a business point of view if investors have confidence that there’s a watchdog looking over things,” says Grant.

Cadaret, Grant statement

Cadaret, Grant on Sept. 14 forwarded the following statement to CNYBJ in reaction to the SEC order.

“The Securities and Exchange Commission (SEC) issued a settled order against Cadaret, Grant containing findings regarding certain types of Exchange Traded Funds (ETFs) that the firm no longer sells to clients. Art Grant and Beda Lee (BJ) Johnson will pay a fine and received sanctions. Cadaret, Grant and a Cadaret, Grant advisor will also pay a fine. FINRA has simultaneously issued a settlement against Cadaret, Grant that pertains to some of the same items that were covered in the SEC order. All of the parties entered into the SEC settlements, and Cadaret, Grant entered into the FINRA settlement, without admitting or denying any of the allegations against them,” the firm said.

The Syracuse firm’s statement continued, saying, “Cadaret, Grant is committed to ensuring that we fully comply with our regulatory obligations. 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.”

Background

The SEC order found that before recommending the investment, the brokers did not take steps to “reasonably research or understand inherent risks” of the ETN or the index it tracked. According to the order, the ETN was meant to be a daily trading tool for sophisticated investors and was not designed 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 order also finds that Cadaret Grant “failed to adopt and implement” policies and procedures concerning the sale of exchange-traded products in investment-advisory accounts.

Besides the fines and suspensions for Grant and Johnson, the SEC charged Long, the Cadaret Grant broker who recommended the ETN to the “greatest number” of customers, for recommending the ETN “without a reasonable basis.”

The order found that Long recommended his customers continue to hold the ETN from 2015 and until spring 2016, when his customers’ holdings were sold at an average loss of more than 90 percent of the amounts they invested.

“Brokers have an obligation to understand complex products and their risks before recommending them to customers,” Daniel Michael, chief of the SEC enforcement division’s complex financial-instruments unit, said in the SEC release. “As this action shows, we will continue to hold people accountable at every level for unsuitable recommendations that harm investors and for the failures that allow those recommendations to be made unchecked.”