As a result of an NASD breakpoint sweep and ensuing NASD enforcement actions, more than $130 million has been returned to investors who did not receive appropriate breakpoint discounts. Those fines resulted from such assessments performed by approximately 2,000 broker dealers under an NASD demand who likewise demanded disclosure of the results. Oppenheimer was in the group required to perform the assessment.
The NASD said that typically, breakpoint discounts are applied to front-end load Class “A” share transactions to reduce sales loads at the investment levels of $50,000, $100,000, $250,000 and $1 million. Class “B” and “C” share transactions typically do not charge front-end sales charges and thus, are generally not entitled to breakpoint discounts.
In a Web site statement , NASD required Oppenheimer to sample 800 front-end load Class “A” share transactions effected between Jan.1, 2001 and Dec. 31, 2002, and to furnish certain information about these transactions in an online self-assessment form posted on NASD’s web site. Oppenheimer’s breakpoint self-assessment was due on June 13, 2003.
Diluting the Sample?
In its latest complaint against Oppenheimer, NASD alleges that on or about June 10, 2003 – three days before the due date – Lowenthal learned that the firm’s 800-transaction sample included Class “A,” “B” and “C” share transactions. The complaint alleges that Lowenthal knew that the firm’s inclusion of “B” and “C” share transactions improperly diluted the firm’s sample, resulting in the firm sampling fewer Class “A” transactions than NASD had required. Regardless, Lowenthal allegedly ordered the submission of this flawed data to NASD. Lowenthal neither notified NASD about the flawed data, nor did he request anyone else to notify NASD about the flawed data, either before or after the firm’s submission, the NASD said.
According to the regulator, NASD discovered this deficiency, as well as numerous other significant problems, in the firm’s self-assessment submission, and on June 13, 2003, directed the firm to re-do the process. In its complaint, NASD alleges that, in response, Lowenthal assigned the same senior officer whom he had charged with preparing the initial self-assessment the task of preparing the second self-assessment. A few months later, Lowenthal terminated this same senior officer, but allegedly failed to assume or delegate responsibilities for the self-assessment to another qualified principal of the firm, the NASD said.
NASD’s complaint alleges that the firm’s second self-assessment, submitted more than five months after the firm’s initial submission, contained many of the same defects as the first. Namely, it:
- continued to include certain Class “B” share transactions
- failed to identify linked accounts
- failed to include proper discount information
- failed to provide the actual sales charge percentages, appropriate sales charge percentages, and the proper discount descriptions
- failed to identify overcharged trades.
In another matter involving Oppenheimer, NASD has censured and fined the firm $250,000 for at least 230 late disclosures of reportable information about its brokers, including customer complaints, regulatory actions and investigations, and terminations.
This is the second time in eight months that NASD has charged the firm with failing to produce documents and information requested by NASD. The first complaint, issued in May 2005, involved an investigation of municipal bond transaction reporting violations, according to the regulator (See NASD Tags Oppenheimer for Reporting Failures ).