Publicly available records provided by the Financial Industry Regulatory Authority (FINRA) indicate that broker-dealer, Cambridge Investment Research, Inc. (CRD # 39543) was recently sanctioned by FINRA’s Department of Enforcement after an investigation into its failure to adequately supervise its representatives’ recommendations of LJM Preservation & Growth Fund (LJM), an alternative mutual fund.
The Law Office of Kevin J. Deloatch, Esq. is interested in speaking to investors who have complaints regarding Cambridge Investment Research, Inc. and LJM.
Registration Background for Cambridge Investment Research, Inc.
Cambridge Investment Research, Inc. has been a member of FINRA since 1995 with its main office located in Fairfield, IA. The firm is a full service broker-dealer, which operates on an independent contractor model. It has approximately 2,500 branch offices with approximately 4,400 registered representatives.
FINRA’s Allegations
According to FINRA Letter of Acceptance, Waiver and Consent (AWC) dated March 29, 2021, Cambridge Investment Research, Inc. consented to, without either admitting to or denying, the following findings by FINRA’s Department of Enforcement:
- “[The] matter originated from FINRA’s 2018 cycle exam of the firm, as well as several customer complaints made to FINRA”;
- “[Cambridge Investment Research, Inc.] failed to reasonably supervise representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund (LJM)”;
- “Between March 2016 and February 2018, [Cambridge Investment Research, Inc.] representatives sold more than $18 million in shares of LJM to over 550 customers, including customers with conservative and moderately conservative risk tolerances”;
- “[Cambridge Investment Research, Inc.] permitted the sale of LJM on its platform without conducting reasonable due diligence and without a sufficient understanding of its risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options”;
- “[Cambridge Investment Research, Inc.] … lacked a reasonable supervisory system to review representatives’ LJM recommendations”;
- “[Cambridge Investment Research’s] supervision of its representatives’ recommendations of alternative mutual funds was not reasonable in several respects”;
- “[T]he firm had no system or procedures to determine whether a new mutual fund constituted a “complex product…””;
- “[T]he firm did not provide adequate guidance or training to representatives regarding the risks and features of alternative mutual funds, and did not have reasonable written supervisory procedures advising firm principals how to supervise recommendations of alternative mutual funds”; and
- By virtue of his it’s actions, Cambridge Investment Research, Inc. violated NASD Rule 3010 and FINRA Rule 3110, regarding supervision as well as FINRA Rule 2010, regarding standards of commercial honor and principles of trade.
FINRA’s Sanctions
FINRA’s March 29, 2021 AWC also indicates that as a result of Cambridge Investment Research, Inc.’s failure to supervise the sales of the LJM Preservation & Growth Fund, it consented to the following sanction(s):
- A censure;
- A fine in the amount of $400,000.00; and
- Restitution in the amount of $3,134,354.82, plus interest.
In addition to the above sanctions, Cambridge Investment Research, Inc. had previously paid more than $740,000.00 in restitution to customers.
Cambridge Investment Research, Inc Has A History of Regulatory Actions
In addition to Cambridge Investment Research, Inc. being censured and fined for its failure to adequately supervise sales of the LJM Preservation & Growth Fund, as described in the March 29, 2021 AWC, FINRA BrokerCheck for Cambridge Investment Research, Inc. reveals it has a history of regulatory actions, including but not limited to:
- Entering into an AWC with FINRA on December 31, 2019, regarding findings that it failed to reasonably supervise short-term trading in UITs and mutual fund class A shares. The firm was censured and fined $150,000.00.
- Entering into an AWC with FINRA on May 3, 2018, regarding findings that it failed to establish, maintain and enforce a reasonably designed supervisory system and procedures regarding redemptions of variable annuities and non-traditional ETFs. It was censured and fined $150,000.00.
- Entering into an AWC with FINRA on December 15, 2016, regarding findings that it disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase class A shares of certain mutual funds. It was censured, required to disgorge profits and pay restitution.
Cambridge Investment Research, Inc Has A History of Customer Complaints
FINRA BrokerCheck for Cambridge Investment Research, Inc. also reveals it has a history of customer complaints and/or customer-initiated arbitrations, including but not limited to:
- On January 4, 2013, a customer-initiated arbitration was filed with FINRA naming Cambridge Investment Research, Inc. as a respondent. The customer alleged breach of fiduciary duty, suitability, negligence and failure to supervise. On July 30, 2014, the arbitration panel issued an award for the customer ordering the company to pay $243,506.74 in damages.
- On November 5, 2014, a customer-initiated arbitration was filed with FINRA naming Cambridge Investment Research, Inc. as a respondent. The customer alleged breach of contract and sought relief in the amount of $1,000,000.01. On November 4, 2015, the arbitration panel issued an award for the customer ordering Cambridge Investment Research, Inc. to pay $170,600.01 in damages.
- On August 1, 2017, a customer-initiated arbitration was filed with FINRA naming Cambridge Investment Research, Inc. as a respondent. The customer alleged breach of fiduciary duty, fraud, omission of facts, suitability, negligence and failure to supervise. On October 3, 2018, the arbitration panel issued an award for the customer ordering Cambridge Investment Research, Inc. to pay $210,375.00 in damages.
If you or someone you know has or had a brokerage account with Cambridge Investment Research, Inc. and have concerns regarding losses in your investments, including the LJM Preservation & Growth Fund or possible sales practice violations including fraud, you may be entitled to recover lost funds. The Law Office of Kevin J. Deloatch, Esq. has an extensive securities law practice and over 30 years of experience on Wall Street. Call today at (646) 792-2156 for a free consultation. The time to file your claim may be limited so you should call today to avoid delay.
