In the Matter of TD Ameritrade, Inc.

TD Ameritrade, Inc. (TD) (defendant) was a registered broker-dealer. In response to customer requests for a higher-yielding alternative to money-market funds, TD selected the mutual fund RYP Fund (RYP). RYP invested in, among other products, commercial paper issued by Lehman Brothers Holdings, Inc. (Lehman). TD offered RYP through its branch offices, national branch, fixed-income-guidance group (FIGG), and investors-services group. The training materials TD designed for selling RYP emphasized that RYP was not a money-market fund and described the risks of an investment. Registered representatives’ direct managers were tasked with conducting in-person training sessions using the training materials. The materials were distributed to managers of TD’s branch offices, national branch, and FIGG with instructions to train representatives. Managers in the investors-services group were sent the materials on an ad hoc basis and without specific instructions to train their representatives. Investors-services-group representatives were generally unfamiliar with the prescribed procedures for offering RYP. TD did not provide any additional or refresher training on RYP, and many new hires received no training. Training materials used at a FIGG training session misdescribed RYP as a money-market fund. In selling RYP, representatives mischaracterized it as a “money-market fund” or a “higher yielding money market” and misrepresented that it was as safe and liquid as money-market funds or insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Although TD’s sales channels had designated offices of supervisory jurisdiction and supervisory procedures for reviewing RYP customer transactions for suitability, no procedures were designed to ensure that representatives provided the proper disclosures. RYP was liquidated after Lehman’s bankruptcy filing. The Securities and Exchange Commission (SEC) (plaintiff) instituted public administrative proceedings, alleging that TD failed reasonably to supervise its registered representatives with a view to preventing their violations of § 17(a)(2) of the Securities Act of 1933, which prohibited the offer or sale of securities to obtain money or property by means of materially false statements or omissions. The SEC accepted TD’s offer of settlement.