Brokerage Firm Review: Cambridge Investment Research

Cambridge Investment Research (CRD #39543) has many different complaints filed by the U. S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority, (FINRA) state regulatory organizations, and investors such as yourself. At the Law Offices of Robert Wayne Pearce, we have investigated Cambridge Investment Research complaints, its regulatory problems, and represented investors with claims of fraud, negligence, and breach of fiduciary duty against this organization and its financial advisors.

If you believe you have a claim against Cambridge Investment Research, you should strongly consider hiring an investment fraud lawyer. You should not wait until it’s too late to file a claim. The Law Offices of Robert Wayne Pearce, P.A., offers free consultations. Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Can I Sue Cambridge Investment Research?

If you’ve lost money caused by Cambridge Investment Research and/or its employees’ misconduct then the answer is, YES, you can sue Cambridge Investment Research, but the odds are you signed away your right to sue in court and agreed to resolve your dispute in a FINRA arbitration proceeding.  Attorney Robert Wayne Pearce has over 40 years of personal experience in FINRA arbitration proceedings and knows very well how you can not only sue Cambridge Investment Research in FINRA arbitration proceedings, but WIN that arbitration.

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

What Is Cambridge Investment Research?

The company was founded in 1981 and has been engaged in its broker-dealer and investment advisory businesses since that time. It is controlled by Cambridge Investment Group and headquartered in Fairfield, Iowa with branch offices located throughout the United States. Its independent broker-dealer Business Model has grown through acquisition and organic development of primarily one and two person registered representative offices supervised remotely. Today there are over 2,500 Cambridge Investment Research branch offices with over 4,400 registered representatives in almost every state. It is now the seventh largest broker-dealer and investment advisory firm in the United States.

Cambridge Investment Research Has Had Many Different Regulatory Problems 

Cambridge Investment Research’s rapid growth has not been without consequences. There have been at least 10 Federal, state and self-regulatory body disclosure events; that is, 10 final and formal proceedings initiated by a regulatory authority (e.g., a state or federal securities agencies like the SEC, FINRA, and states who are members of the North American Securities Administrators Association (NASAA) ) for a violation(s) of investment-related rules or regulations. In addition, there have been hundreds of customer complaints filed against Cambridge Investment Research for misconduct by its securities sales and investment advisory representatives that are not reported by the firm on its Central Depository Record. 

We have reported and written about these regulatory problems and customer complaints over many years. Cambridge Investment Research is a repeat offender: there are at least 10 SEC and FINRA reported disciplinary proceedings citing the firm with one form of supervisory lapses or another in the last decade.

A Brief Overview of Some of the Regulatory Problems Cambridge Investment Research Has Faced Over the Years*

Cambridge Investment Research has been repeatedly censured, warned, and fined for its own misconduct and failure to supervise its army of financial advisors. A few of the notable SEC and FINRA investigations for its misconduct are below:

Cambridge Investment Research Ordered By FINRA to Pay Over $3.1 Million in Restitution and $400,000 in Fines

Brief Overview: Cambridge Investment Research allegedly failed to reasonably supervise representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund (LJM). According to the FINRA AWC Cambridge Investment Research 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 also lacked a reasonable supervisory system to review representatives’ LJM recommendations. Cambridge representatives sold more than $18 million in LJM to customers. LJM’s value dropped 80% during an extreme volatility event in February 2018 and the fund ultimately liquidated and closed, resulting in millions of dollars in losses for Cambridge’s customers.

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Cambridge Investment Research Censured And Fined By FINRA For UIT And Mutual Fund Share Abuses

According to FINRA, Cambridge Investment Research allegedly failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD and FINRA Rules, in three principal areas of the Firm’s business:

• Failed to supervise short-term trading of Unit Investment Trusts (UITs) and mutual fund Class A Shares;
• Failed to comply with with NASD Rule 2440 and FINRA Rule 2121 (Fair Prices and Commissions), which resulted in the Firm charging excess commissions, and,
• Failed to reasonably ensure that customers received available mutual fund breakpoint discounts.

FINRA censured and fined Cambridge Investment Research for the alleged violations of FINRA Rules 2010, 2121, 3110 and NASD Rule 2440.

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Cambridge Investment Research Ordered By The SEC To Pay Over $6.1 Million In Disgorgement And Interest For Mutual Fund Abuse

These SEC proceedings arose out of alleged breaches of fiduciary duty and inadequate disclosures by registered investment adviser Cambridge Investment Research Advisors, Inc. in connection with its mutual fund share class selection practices and the fees it, its affiliated broker, and associated persons received pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”). Respondent’s registered persons allegedly purchased, recommended, or held for advisory clients’ mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Respondent, its affiliated broker, and its associated persons received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay such fees. During the Relevant Period, Respondent, its affiliated broker, and its associated persons received 12b-1 fees for advising clients to invest in or hold such mutual fund share classes.

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FINRA Censures And Fines Cambridge Investment Research For Variable Annuity And Non-Traditional ETF Rule Violations

FINRA investigated and found that Cambridge Investment Research did not properly supervise variable annuities transactions. Additionally, that Cambridge Investment Research failed to establish, maintain, and enforce a supervisory system and written supervisory procedures reasonably designed to supervise representatives’ sales of leveraged, inverse, and inverse-leveraged exchange traded funds (“Non-Traditional ETFs”). According to FINRA, Cambridge Investment Research violated Securities Exchange Act of 1934 Rule 17a-3, NASD Rule 3010, and FINRA Rules 2010, 3110, and 4511 which warranted a Censure and Fine.

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Cambridge Investment Research Censured And Ordered By FINRA To Pay Restitution For Mutual Fund Share Abuse

FINRA investigated and found that Cambridge Investment Research disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge (“Eligible Customers’). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. According to FINRA, Cambridge Investment Research failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, FINRA concluded that Cambridge Investment Research violated NASD Conduct Rule 3010 and FlNRA Rule 3110, and FINRA Rule 2010. Based upon FINRA’s findings, Cambridge Investment Research agreed to a Censure, to identify the victims of this form of mutual fund share abuse and pay the Eligible Customers restitution.

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Cambridge Investment Research Ordered By The SEC To Pay Civil Penalty For Failure To Supervise

This failure to supervise case arose out of a fraudulent scheme by Richard P. Sandru (“Sandru”), the principal of a Cambridge Investment Research Office of Supervisory Jurisdiction (“OSJ”) and investment adviser representative associated with the firm, to misappropriate investment advisory client funds from at least 47 advisory clients. Sandru also engaged in unsuitable options trading in the accounts of certain advisory clients. The SEC investigated and found Cambridge Investment Research failed reasonably to supervise Sandru with a view to preventing his violations of the federal securities laws. Sandru was supposed to have been on heightened supervision, however, Cambridge Investment Research, failed to have systems that would reasonably be expected to ensure that Sandru’s heightened supervision plan was disclosed to and implemented by his supervisors. As a result, the SEC concluded Sandru’s heightened supervision was not implemented. Cambridge Investment Research also failed to have policies and procedures that would reasonably be expected to prevent fraudulent activities in connection with financial planning services offered by investment adviser representatives. In addition, the SEC found Cambridge Investment Research lacked systems that would reasonably be expected to implement its policies to prevent unsuitable options trading in advisory client accounts. The SEC ordered Cambridge Investment Research to cease and Desist from its supervisory failures and pay a Civil Penalty.

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FINRA Charged Cambridge Investment Research With Cheating Customers Out Of Sales Charge Discounts

FINRA also found Cambridge Investment Research failed to apply “rollover” and exchange discounts (collectively “sales charge discounts”) to certain customers with eligible purchases of unit investment trusts (”UlTs”) in violation of NASD Rule 21 10 and FINRA Rule 2010. In addition, it found Cambridge Investment Research failed to establish, maintain and enforce a supervisory system and written supervisory procedures (”WSPs”) reasonably designed to ensure that customers received sales charge discounts on all eligible UIT purchases in violation of NASD Rules 3010 and 2110 and FINRA Rule 2010. It was Censured and Fined for the alleged misconduct.

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Why Does Cambridge Investment Research Have So Many Regulatory Problems And Customer Complaints?

Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise type operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors’ rights and interests as their lowest priority.

The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor’s compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these Independent broker-dealers. 

Generally, there is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. There may be no one onsite to detect forgeries of clients’ signatures on documents, the placement of inaccurate information about a client’s investment objectives and financial condition to document the suitability of a particular investment recommendation. Oftentimes there is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, it is not unusual for there to be only one compliance audit visit per year at many of these offices.

These Independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms than the traditional brokerage firms with branch offices with on-site managers and compliance personnel.

Did Cambridge Investment Research Financial Advisor Misconduct Cause You Investment Losses?

When financial advisor misconduct has caused you to lose substantial value to your investment accounts, you have the right to seek reimbursement from the responsible parties. LPL Financial is responsible like any employer for its financial advisors acts and omissions. In addition, it has an independent duty to supervise its stockbrokers and investment advisors. These cases can be extremely complex, and so having the support of a reputable attorney who is experienced in recovering investment losses for investors is key to your success. Many customers make the mistake of contacting LPL Financial without representation with an attorney about their complaints and have their complaints denied.

Related Read: Can You Sue Your Brokerage Firm?

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

Consult With An Attorney Who Recovers Investment Losses Caused By Cambridge Investment Research Financial Advisors Today!

The securities lawyers at The Law Offices of Robert Wayne Pearce, P.A., have helped countless investors over the last 40 years recover the losses from their investment accounts that were caused by broker negligence or misconduct. The firm has extensive experience with Cambridge Investment Research cases, and Attorney Pearce is committed to seeing that those responsible for the losses you have suffered are held fully accountable.

Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $170 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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