Massachusetts Secretary of the Commonwealth William Galvin has slammed Infinex Investments with a $125,000 fine and ordered the firm to pay restitution to customers who claimed they were sold investments at their local banks that they either did not ask for or did not understand.
In a 17-page consent order, the securities regulator criticized the broker-dealer for failing to disclose that the products it sold through networking agreements with partner banks were not bank products or FDIC-insured.
“Broker dealers operating on bank premises have both a legal and ethical duty to make clear to the customers that they are no longer dealing with the bank,” Galvin said in a statement, adding that bank customers are often misled to believe that they are buying products similar to CDs.
Infinex has networking agreements with some 30 banks in Massachusetts, according to Galvin’s office.
The Massachusetts regulator also chided the firm for failing to supervise Infinex registered reps working at the banks. One supervisor who had oversight of some 180 Infinex representatives, for example, testified that he spent “maybe 10%” of his week in a compliance function, investigators said.
Galvin launched an investigation into Infinex’s sales practices after receiving complaints from Massachusetts senior citizens. One investor, a 71-year-old retiree and self-described homemaker, claimed that an Infinex rep sold her a product without revealing that it was an annuity, a product she had told the rep she did not want, according to the regulator.
Others complained about the sale of REITs, variable annuities and other high-commission securities. A 75-yer-old retiree, for example, invested $50,000 in a non-traded healthcare REIT on the recommendation of an Infinex rep working at the investor’s local bank. The rep earned a $3,500 commission on the sale of the product.
In addition to the $125,000 fine and making full restitution to investors, Infinex was censured and ordered to cease and desist from further violations. It was also ordered to retain an independent compliance consultant to review its supervisory structure and REIT and annuity sales practices.
Infinex declined to comment on the settlement. It agreed to the sanctions without admitting or denying the regulator’s statement of facts.
Infinex joins three other independent broker-dealers who were called out for similar infractions in Utah. LPL Financial, CUSO Financial Services and Cetera Advisor Networks were named in petitions filed by Utah’s Securities Division with the state’s Securities Commission to have the trio censured and fined a collective $2.25 million for allegedly violating regulations governing how broker-dealers can work with credit unions.