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FINRA sanctions brokerage for failing to supervise 'risky business'

Feb 07 2013 Stuart Gittleman, Compliance Complete

The Financial Industry Regulatory Authority has sanctioned a broker-dealer, Leonard & Company, for failing to supervise retail sales of a security that regulators have long considered to be a particularly risky product. The case highlights the need to be aware of the regulatory environment, especially when deciding to offer a new product or an older product to different types of customers, and to ensure that registered representatives are appropriately trained and supervised. The product, inverse floater collateralized mortgage obligations, has been on regulators' radar at least since 1993, when NASD, FINRA's predecessor, in Notice to Members 93-73 warned that it is suitable only for sophisticated investors with high risk profiles. CMOs are securities with a range of yield, price volatility and risk characteristics that are collateralized by mortgage-backed securities, which in turn are collateralized by a pool of mortgages. The principal and interest from the underlying mortgages

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