SEC Uses Big Data to Prosecute 5 Firms for Unsuitable Recommendations
The SEC used trading data analytics to uncover, sanction, and fine 5 firms whose representatives made unsuitable sales of volatility-linked exchange traded products. The SEC charges that the reps did not understand the products and recommended purchases for extended holding periods that resulted in client losses. The firms failed to conduct adequate supervision and to implement required suitability policies and procedures. The awards include an aggregate of $3 Million in disgorgement and nearly $3 Million in penalties. An SEC official lauded the agency’s analytics: “These cases demonstrate the importance of data analytics in our efforts to surveil the market and pinpoint unsuitable sales of complex financial products,” and “We will continue to use these tools to protect retail investors.”
The Feds are watching. The SEC has said for many years that it has been developing a big data analytics function to monitor market wrongdoing. Those efforts appear to be producing enforcement results.