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Cetera Advisor Networks, LLC

Background Information

Cetera Advisor Networks, LLC (CRD# 13572) (“Cetera”) is an independent brokerage firm that was founded in 1983 as Financial Network Investment Corporation (FNIC). In 1997, FNIC was sold to Aetna Financial Services. In 2000, Aetna was subsequently acquired by ING Group. Lightyear Capital subsequently purchased three ING Group brokerage firms, including FNIC, and renamed the brokerage firm network Cetera Financial Group. Finally, in 2014 Lightyear Capital sold Cetera Financial Group to RCS Capital Corporation, a company partially-owned by the notorious Nicholas “Nick” Schorsch for $1.15 billion. Schorsch and his companies gained notoriety by sponsoring numerous BDCs and REITs.

Cetera is based in El Segundo, California and is one of the largest independently managed broker-dealers in the United States with a network of 10 broker-dealer firms and about 9,500 advisors. It promotes itself as a pioneer in the emergent independent-contractor broker-dealer scene.

Brokerage Firms Under Cetera’s Control Regulatory Violations Five Cetera Subsidiaries Ordered to Pay $4.5 Million for Supervisory Failures Related to Variable Annuity L-Shares

In October 2016, FINRA sanctioned and fined five Cetera firms: Cetera Advisor Networks LLC; Cetera Financial Specialists LLC; First Allied Securities, Inc.; Summit Brokerage Services, Inc.; and VSR Financial Services, Inc. The Acceptance, Waiver & Consent (AWC) entered into between FINRA and the firms allege the Cetera firms ignored customer red flags, such as long-term investment horizons, and recommended customers purchase the L-shares. Moreover, FINRA found that none of the Cetera firms had systems that were sufficient to review for variable annuity classes or to identify potential patterns of unsuitable sales, among other charges. In total, the Cetera firms were ordered to pay customers at least $4.5 million.

Cetera Sanctioned for Excessive Sales Charges on Unit Investment Trusts

Without admitting or denying the findings, Cetera consented to sanctions and to the entry of findings in October 2015 that it failed to identify and apply sales charge discounts to certain customers’ eligible purchases of unit investment trusts (UITs). This resulted in customers paying excessive sales charges in the amount of $151,000. Further, the findings stated that Cetera failed to establish, maintain and enforce a supervisory system and procedures designed to ensure sales charge discounts on all eligible UIT purchases. The firm was ordered to pay $151,000 in restitution and another $150,000 in fines.

Cetera Fined over $3.4 Million for Revenue Sharing Program Connected to Mutual Funds

Cetera was fined $3.41 million in July 2006 for allegedly maintaining a shelf space (revenue sharing) program known as the Strategic Partners Platform in connection with retail sales of mutual funds. According to FINRA, Cetera allegedly gave preferential treatment to mutual fund complexes that participated in the program in exchange for payments. Some mutual funds complexes allegedly made payments for participating in the program by directing approximately $12.5 million in mutual fund portfolio brokerage commissions to the firm through clearing brokers.

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