The SEC staff released a report identifying common weaknesses in sales of structured securities products (“SSPs”) to retail investors and describing certain suggested measures that should be taken by broker-dealers to better protect retail customers from fraud and abusive sales practices. The report summarizes the results of a sweep examination conducted by the staff of the SEC’s Office of Compliance Inspections and Examinations of the retail SSP businesses of 11 broker-dealers, representing a range of industry participants. The SEC staff observed evidence of issues regarding (1) customer specific suitability, (2) improper classification of SSPs on account statements, (3) appropriate secondary market pricing by issuer-affiliated broker-dealers, (4) lack of training regarding SSPs at the registered representative and supervisory levels and (5) inadequate controls for sales practices relating to secondary market transactions in SSPs. The SEC staff recommended, among other things, that broker-dealers focus on ensuring disclosure of all material facts in connection with SSPs being offered, improved controls for monitoring sales practices (particularly relating to suitability) and enhanced training for sales and supervisory personnel.
Alert August 02, 2011