Welcome to Financial Advisor IQ
Follow

Janney Charged Over Supervisory Failures Related to Mutual Fund Charges

May 9, 2019

Janney Montgomery Scott is facing an administrative complaint from Massachusetts’ top securities cop over alleged failures in supervising its former broker’s sales of mutual funds, according to news reports.

From 2012 to 2017, the firm allegedly failed to stop Stephen Querzoli from short-term trading of class A mutual fund shares, FA magazine writes, citing a complaint filed earlier this week by the office of the Secretary of the Commonwealth William Galvin.

Mutual funds in this share class are designed to be held for at least five years, but Querzoli allegedly traded them in some cases after just a few months, according to the complaint cited by the publication.

What’s more, because such mutual funds have higher front-load fees and lower annual expenses, they typically yield higher commissions to those selling them, FA magazine writes.

Galvin’s office accuses Querzoli of making close to $200,000 in “unnecessary commissions” during the period in question, according to the publication.

Janney, meanwhile, allegedly failed to stop Querzoli, even after opening an inquiry into his sales practices in 2015 that led to the discovery that the former broker held class A shares for less than 12.5 months on average, FA magazine writes, citing the complaint.

A branch manager at Janney allegedly told Querzoli that mutual funds with lower front-loaded fees would be better for the clients but Querzoli continued buying the class A shares, Galvin’s office alleges, according to the publication.

Janney closed its inquiry after six months without taking any action against Querzoli, according to Galvin’s office, FA magazine writes.

The complaint seeks a fine, censure and restitution, as well as an order that would require Janney to perform a review of all of Querzoli’s accounts and hire an independent compliance consultant to assess its policies and procedures on short-term trading of class A shares, according to the publication.

Querzoli joined the financial services industry in 1984 and was registered at six different firms before joining Janney in 2012, according to his BrokerCheck profile.

He left Janney in December 2018 and never registered with another firm, according to BrokerCheck. Querzoli’s profile has no disclosure events.

Galvin’s complaint follows actions taken by other regulators related to alleged infractions in mutual fund sales.

The SEC offered an amnesty last year to firms that self-reported fee violations, and has been going after alleged violators since the amnesty ended last June.

This March, the regulator settled with 79 firms, including Wells Fargo, LPL and Raymond James, who had self-reported selling higher-priced mutual funds to some of their clients than what was available to them.

The firms agreed to collectively return more than $125 million to the allegedly harmed clients. Lawyers say that with the amnesty and settlement out of the way, the SEC is now likely to start making examples of alleged share class violators.

By Alex Padalka
  • To read the FA Magazine article cited in this story, click here.