The Financial Industry Regulatory Authority (FINRA) charged Securities America with allegations of mutual fund switching. Securities America is currently owned by Osaic. Osaic paid $3 million to settle these charges.
Fund switching occurs when a fund is exchanged for another such fund. Regulators consider this fraudulent because the sales charges, or load, are so great. The charge is so great that taking on a new load by exchanging the fund rarely makes economic sense. Any recommendation that a mutual fund with a front load be liquidated in the short term raises a red flag.
From at least January 2018 to June 14, 2024, Securities America failed to have a supervisory system designed to achieve compliance with FINRA Rule 2111. This rule requires that brokerage firms offer only strategies that are suitable for their investors. Securities laws also require firms to offer only strategies in the investor’s best interests, which SA lacked.
Class A mutual funds are generally suitable only as long-term investments and not for short-term trading. Class A share funds carry significant sales charges. An investor usually must hold the Class A share for a long enough period of time to recoup the costs associated with the front-end sales charge.
Between January 1, 2018, and June 14, 2024, Securities America effected the purchase of approximately $3.8 billion in Class A mutual funds, which comprised a substantial portion of the firm’s revenue. However, from at least January 2018 to June 14, 2024, Securities America failed to establish, maintain, and enforce a supervisory system.
Jeffrey Pederson represents victims of fund switching. Call for a consultation.
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