WASHINGTON–(BUSINESS WIRE)–FINRA has fined First Trust Portfolios L.P. $10 million for providing excessive non-cash compensation (e.g., gifts, meals, and entertainment) in connection with the distribution of First Trust investment company securities and related misconduct.
First Trust provided gifts, meals and entertainment to representatives of retail broker-dealers (client firms) that sold First Trust investment company securities, which significantly exceeded FINRA limits for non-cash compensation. In certain instances, First Trust preconditioned the non-cash compensation on client firm representatives achieving sales targets with respect to First Trust products (e.g., exchange-traded funds and unit investment trusts). In addition, First Trust wholesalers, who are generally responsible for marketing and selling financial products to client firms, falsified internal expense records, and First Trust sent client firms reports containing inaccurate information about the value, nature and frequency of non-cash compensation that First Trust provided to client firm representatives.
“FINRA’s non-cash compensation rule is designed to protect investors by preventing financial recommendations from being unduly influenced by excessive gifts, entertainment or other perks supplied to broker-dealers or their registered representatives,” said Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA.
FINRA Rule 2341 (Investment Company Securities) prohibits member firms from making payments or offers of payments of any non-cash compensation subject to specified exceptions. For example, the exceptions permit gifts that do not exceed $100 per person and an occasional meal, a ticket to a sporting event, or comparable entertainment so long as the gifts, meals or entertainment are not preconditioned on achievement of a sales target.
Between at least 2018 and February 2024, First Trust wholesalers regularly violated Rule 2341 by providing to client firm representatives gifts that significantly exceeded the annual limit and meals and entertainment that were so frequent and extensive as to raise questions of propriety. The gifts far exceeded even the higher limit recently proposed by FINRA. In May 2025, FINRA filed a proposal with the SEC to increase the gift limit to $250 annually, and in September, FINRA filed an amended proposal further increasing the limit to $300 annually.
For example, on more than 25 occasions during the relevant period, two First Trust wholesalers provided client firm representatives two courtside basketball tickets at a cost of approximately $3,200 per pair. In another example, over an 18-month period, various First Trust wholesalers provided one client firm representative entertainment, including tickets to more than 20 concerts and sporting events, with a total value exceeding $31,000. A First Trust wholesaler also preconditioned a gift of tickets to a professional hockey game on a client firm representative selling $1 million in First Trust products to his customers.
During the same period, First Trust wholesalers falsified internal expense records relating to more than $650,000 worth of non-cash compensation provided to client firm representatives. First Trust sent client firms false and misleading information about the non-cash compensation provided—omitting more than $500,000 worth of gifts, meals and entertainment.
First Trust also failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with non-cash compensation rules and expense-related recordkeeping requirements.
In settling these matters, First Trust consented to the entry of FINRA’s findings, without admitting or denying the charges. In addition, the firm agreed to provide annual compliance certifications to FINRA for three years regarding the issues identified in the settlement.
FINRA makes available disciplinary actions and other information on its Disciplinary Actions Online database. In addition, FINRA publishes on its Monthly Disciplinary Actions page a summary of disciplinary actions against firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board. FINRA’s use of fine monies is limited to specific purposes set forth in its public Financial Guiding Principles, which are approved by its Board of Governors. FINRA publicly itemizes and discloses how it uses fine monies each year.
About FINRA
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. FINRA regulates one critical part of the securities industry—member brokerage firms doing business in the U.S. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
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