← Broker database 2025-12-24
Carter Terry & Company Fined $75,000 and Ordered to Pay $176,590 in Restitution for UIT Supervision Failures
According to FINRA, Carter, Terry & Company, Inc. was censured, fined $75,000, and ordered to pay $176,590.57 in restitution to customers for failing to reasonably supervise recommendations regarding unit investment trusts (UITs), particularly early redemption recommendations.
UITs are investment products with a defined termination date. When investors hold UITs until maturity, they avoid paying additional sales charges. However, when representatives recommend that customers redeem UITs early and roll the proceeds into new UITs, customers must pay new sales charges that could have been avoided. These recommendations may violate Regulation Best Interest's Care Obligation if they are not in the customer's best interest and are driven by the representative's compensation interests.
Carter, Terry & Company had no written policies or procedures addressing UIT recommendations, including early redemption recommendations, for much of the relevant period. In May 2023, the firm added a section to its procedures addressing UITs and the need for additional review of early redemptions. However, even these updated procedures did not require consideration of the costs associated with early redemption recommendations or provide criteria for supervisors to determine whether such recommendations were in customers' best interests.
The firm's surveillance for problematic UIT transactions was inadequate. The firm flagged UIT transactions for supervisory review using an automated report that identified purchases following sales or liquidations of UITs, but this report did not identify early redemptions. Reviewers were not directed to manually identify early redemptions.
The firm later began requiring representatives to submit sales/exchange forms for early UIT redemptions, but failed to implement any process for ensuring representatives actually submitted these forms. Representatives failed to submit forms for over 100 early redemptions. For forms that were submitted, the firm generally accepted representatives' purported rationales without meaningful scrutiny and approved every early redemption that received supervisory review.
These supervisory failures allowed a representative to engage in a pattern of recommending that customers sell UITs significantly before maturity and roll proceeds into new UITs, often the next series of the same UIT. Collectively, these recommendations caused customers to pay $176,590.57 in costs and fees that would have been avoided by holding UITs to maturity. The restitution will return these unnecessary fees to affected customers.