optionsXpress, Inc. Sanctioned Over Allegations of Unlicensed Securities Sales

shutterstock_188383739The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm optionsXpress, Inc. (optionsXpress) concerning allegations that: 1) between March 2007, and March 2012, optionsXpress contracted with a third party service provider referred to as (GBT) to provide options trading coaching services to the firm’s options customers; 2) the firm approved marketing scripts that were used by GBT to sell the coaching program to optionsXpress customers that failed to present a fair and balanced description of the risks and potential benefits of the coaching program; and 3) between April 2011, and July 2011, the firm operated a retail forex business without having first received approval from FINRA to do so.

optionsXpress has been a FINRA firm since August 2000. The firm is primarily an online broker-dealer that specializes in providing customers an online platform to trade options.

FINRA found that under the terms of the firm’s Agreement with GBT coaches were prohibited from advising clients in live trading situations. The agreement provided that GBT coaches are vigorously trained on the absolute prohibition of making buy/sell recommendations to students. However, FINRA found that in implementing the coaching program, GBT’s coaches did not uniformly adhere to this prohibition and in certain instances coaches discussed live trades, specific transactions, or strategies that the customer was considering executing. Even though coaching sessions were prefaced with the disclaimer that coaches were not permitted to make buy, sell, or hold recommendations, FINRA determined that in certain sessions, the “coaching” surpassed mere discussions of specific securities transactions, and rose to the level of buy, sell, or hold recommendations.

The Agreement between optionsExpress and GBT also required prior written approval from optionsXpress before using marketing scripts and coaching materials, discretion and control over the hiring and termination of coaches and staff, and the right to monitor the coaching calls  FINRA found that notwithstanding the contract the firm neither adopted nor implemented any policies or procedures to supervise its employees in their review and approval of the marketing scripts used by GBT or to ensure that its employees monitored GBT personnel’s interactions with customers.

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