A.G. Edwards & Sons Inc. was fined $400,000 by the New York Stock Exchange for failing to supervise the marketing and sale of inappropriate investments to elderly clients.
The exchange's four-member panel found that from 1994 to 2000 the firm sold securities such as callable certificates of deposit valued at about $3.5-billion to more than 125,000 of those clients. Such investments are considered unsuitable for the elderly because the CDs have maturities exceeding 10 years.
The St. Louis-based firm, which did not admit or deny guilt, did not ensure that its representatives who sold the securities told customers about all the features of callable CDs, the NYSE said. A.G. Edwards also agreed to have an independent consultant review its procedures and the way it supervises brokers. Lionel Pashkoff, an outside counsel for the firm, declined to comment.
Four hundred customers filed complaints regarding 220 representatives who had sold them the securities.
Callable CDs allow the issuer to call them back if interest rates fall. When that happens, the buyer is left with cash to reinvest at lower interest rates. Such investments often offer a higher rate of return than traditional CDs. They are considered high risk for elderly consumers who generally want short-term, fixed-income investments, the NYSE said.
A.G. Edwards brokers also sold other unsuitable securities, the NYSE said. One broker in Omaha, Neb., sold $4-million worth of high-yield bonds to 147, mostly elderly, customers who were looking for conservative investments. The bonds were considered speculative investments and the company that issued the notes eventually went bankrupt.
The securities firm also didn't make sure that branch managers were supervised, the NYSE said. In one case, a branch manager received a letter in which a customer complained that the manager had made unauthorized trades on the customer's account. No one was reviewing the manager's correspondence and the complaint was never reported to the NYSE, as required.
The NYSE also found other violations, including not maintaining updated client records, trading securities on the firm's restricted list and allowing employees with criminal convictions to work at the firm.