The Financial Industry Regulatory Authority (FINRA) announced Wednesday that it has fined brokerage firm Oppenheimer & Co. US$2.25 million and ordered the firm to pay more than US$716,000 in restitution to affected customers for selling leveraged, inverse, and inverse-leveraged exchange-traded funds (ETFs) to retail customers without reasonable supervision, and for recommending ETFs that were not suitable.

New York City-based Oppenheimer settled the case, neither admitting nor denying the charges, but consenting to the entry of FINRA’s findings.

Oppenheimer adopted policies in 2009 prohibiting reps from soliciting retail clients to purchase non-traditional ETFs, and prohibiting them from executing unsolicited purchases unless the clients met certain criteria, FINRA says. These policies were introduced in response to a FINRA warning about the risks and inherent complexities of certain ETFs.

However, the firm failed to enforce these policies, says FINRA, and from August 2009 through September 2013 more than 760 of Oppenheimer’s reps executed more than 30,000 transactions in non-traditional ETFs, totaling approximately US$1.7 billion.

Oppenheimer “failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs and, as a result, did not have a reasonable basis to recommend these ETFs to retail customers,” FINRA says. The regulator also alleges that the firm “did not establish an adequate supervisory system to monitor the holding periods” for the funds, causing some clients to hold them for extended periods, which FINRA says resulted in substantial losses.

“Written procedures are worthless unless accompanied by a program to enforce them,” says Brad Bennett, executive vice president and chief of enforcement at FINRA, in a statement.

“While Oppenheimer’s procedures prohibited solicitation of non-traditional ETFs, the absence of any meaningful compliance effort resulted in its representatives continuing to solicit unsuitable non-traditional ETF purchases, including a number involving elderly investors,” he adds.