FINRA Censures and Fines Paulson for Variable Interest Rate Structured Products Sales
Paulson Investment Company, LLC, a FINRA-registered firm, is headquartered in Lake Oswego, Oregon.
According to a Letter of Acceptance Waiver and Consent on January 20, 2023, the Financial Industry Regulatory Authority (FINRA) censured and fined Paulson Investment Co. $150,000 and ordered the firm to pay more than $185,000 in restitution for supervisory failures related to the sale of structured products.
According to the letter, from January 2016 through May 2019, Paulson allegedly failed to reasonably supervise unsuitable recommendations to purchase variable interest rate structured products that three firm representatives made to approximately 70 customers. As a result, the firm violated FINRA Rules 3110 and 2020.
Variable Interest Rate Structured Products are complex, structured securities, typically issued by large well-known financial institutions, that offer guaranteed periodic fixed-interest rate payments, typically for one to three years. After the fixed-interest rate periods end, however, the structured products make periodic variable interest rate payments, but only if a spread exists in which the long-term Constant Maturity Swap (CMS) rate is greater than the short-term CMS rate and certain reference securities indexes, such as the S&P 500 and/or the Russell 2000 stock indexes, do not decline by more than a specified percentage.
Unfortunately, once the fixed-interest rate payment periods end, the investors are not guaranteed to receive any further interest payments from the investment. According to one of the prospectuses for a variable interest rate structured product, there can be no assurance that [investors] will receive a contingent interest payment on any interest payment date and that “the securities are not a suitable investment for investors who require regular fixed income payments, since the contingent interest payments are variable and may be zero.”
Broker dealers are required to perform adequate due diligence on all investment recommendations. They must ensure that each investment recommendation that is made is suitable for the investor in light of the investor’s age, risk tolerance, net worth, financial needs, and investment experience.
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Tags: FINRA lawyer, Paulson Investment co. Finra, securities fraud attorney, unsuitable investments, Variable Interest Rate Structured Products Last modified: January 24, 2023