FINRA Case Involving Gifts and Entertainment

On October 21, the Financial Industry Regulatory Authority (FINRA) filed a settled enforcement action involving allegedly improper gifts and entertainment in connection with sales of mutual fund shares. The $10 million fine was particularly noteworthy. According to the FINRA press release announcing this action: 

“First Trust provided gifts, meals and entertainment to representatives of retail broker-dealers (client firms) that sold First Trust investment company securities, which significantly exceeded FINRA limits for non-cash compensation. In certain instances, First Trust preconditioned the non-cash compensation on client firm representatives achieving sales targets with respect to First Trust products (e.g., exchange-traded funds and unit investment trusts). In addition, First Trust wholesalers, who are generally responsible for marketing and selling financial products to client firms, falsified internal expense records, and First Trust sent client firms reports containing inaccurate information about the value, nature and frequency of non-cash compensation that First Trust provided to client firm representatives.”