COLUMBUS, Ohio – The Ohio Department of Commerce Division of Securities announced that Ohio has joined a multimillion-dollar settlement with dozens of other state securities regulators after an investigation into five investment firms.
The $9.34 million settlement follows investigators’ allegations that Edward Jones, LPL Financial, RBC, Stifel and TD Ameritrade charged unreasonable commissions to retail customers on small-dollar transactions.
Data shows that during a five-year period covered by the investigation, the firms charged about $19 million to process 1.12 million small-dollar equity transactions and trades nationwide, a news release states.
State securities laws prohibit firms from charging unreasonable commissions to clients. To determine excessive or unreasonable fees, regulators consider several factors, including guidance provided by the brokerage industry’s self-regulatory organization, Financial Industry Regulatory Authority. Pursuant to guidance under FINRA Rule 2121, a commission pattern of 5% or less may be considered unfair or unreasonable. In this case, numerous equity transactions executed by the firms involved included a commission well in excess of 5% of the principal value of the transaction at issue, the release states.
At least 40,000 investors in Ohio have already reported losses totaling nearly $600,000, and the Division of Securities expects these figures to grow as the legal proceedings continue to unfold.
The settlement announced by the North American Securities Administrators Association followed an investigation led by a multijurisdictional working group of state securities regulators in Alabama, Iowa, Massachusetts, Missouri, Montana, Texas and Washington. Regulators found the five firms charged unreasonable commissions to thousands of retail brokerage customers on certain equity transactions.
As a result of the investigation and settlement terms, the firms have agreed to provide affected customers with restitution, plus interest in the amount of 6% from the date of the customers’ transactions through the date of execution of the Term Sheet and Offer of Settlement. Fines and costs will also be assessed. The firms will pay total fines not to exceed $9.34 million to settling states, in addition to reimbursement of investigative costs to the states in the working group. Each firm must also take measures to ensure its policies and procedures include safeguards to prevent charging excessive fees.
“Investor protection is the core principle guiding our efforts, and this settlement reflects the importance of ensuring fair treatment for retail customers,” said Ohio Securities Commissioner Andrea Seidt. “By working together, state securities regulators have not only secured restitution for affected customers, they have also reinforced the importance of fair and transparent practices in the marketplace.”