Key Investment Services Llc

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND THE ENTRY OF FINDINGS THAT IT FAILED TO IDENTIFY AND APPLY SALES CHARGE DISCOUNTS TO CERTAIN CUSTOMERS' ELIGIBLE PURCHASES OF UITS RESULTING IN CUSTOMERS PAYING EXCESSIVE SALES CHARGES OF APPROXIMATELY $95,254.34. THE FINDINGS STATED THAT THE FIRM HAS ALREADY PAID RESTITUTION TO ALL AFFECTED CUSTOMERS IN ADDITION TO INTEREST OF $4,992.68. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO ESTABLISH, MAINTAIN AND ENFORCE A SUPERVISORY SYSTEM AND WSPS REASONABLY DESIGNED TO ENSURE THAT CUSTOMERS RECEIVED SALES CHARGE DISCOUNTS ON ALL ELIGIBLE UIT PURCHASES. Status: Final Sanction Detail: THE FIRM WAS CENSURED, FINED $100,000 AND ORDERED TO PAY RESTITUTION TO CUSTOMERS IN THE TOTAL AMOUNT OF $100,247.02.

Allegations: THE SEC ENTERED AN ORDER (THE "ORDER") AGAINST KIS THAT ALLEGED THAT KIS WILLFULLY VIOLATED RULE 15L-1(A)(1) OF THE EXCHANGE ACT AND SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. ACCORDING TO THE ORDER, BETWEEN JUNE 30, 2020 AND FEBRUARY 2022, KEY INVESTMENT SERVICES FAILED TO COMPLY WITH REGULATION BI BY RECOMMENDING, THROUGH ITS REGISTERED REPRESENTATIVES AND INVESTMENT ADVISER REPRESENTATIVES, THAT CERTAIN OF ITS BROKERAGE CUSTOMERS AND ADVISORY CLIENTS TRANSFER SECURITIES FROM KEY INVESTMENT SERVICES ACCOUNTS TO NEW INVESTMENT ACCOUNTS WITH KEY INVESTMENT SERVICES' AFFILIATE KEY PRIVATE BANK, A WEALTH MANAGEMENT FIRM THAT IS PART OF THE SAME PARENT ORGANIZATION, WITHOUT DISCLOSING THAT THE REPRESENTATIVES WOULD RECEIVE COMPENSATION FOR MAKING THE RECOMMENDATIONS AND FOR ANY SECURITIES TRANSFERS, AND THEREFORE HAD A CONFLICT OF INTEREST. THE ORDER FURTHER FINDS THAT KEY INVESTMENT SERVICES' WRITTEN POLICIES AND PROCEDURES WERE NOT REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH KEY INVESTMENT SERVICES' DISCLOSURE OBLIGATIONS UNDER REGULATION BI AND THE ADVISERS ACT WITH REGARD TO CONFLICTS OF INTEREST ASSOCIATED WITH THE RECOMMENDATIONS TO TRANSFER SECURITIES OUT OF KEY INVESTMENT SERVICES BROKERAGE AND ADVISORY ACCOUNTS TO INVESTMENT ACCOUNTS HELD AT KEY PRIVATE BANK OR TO IDENTIFY AND ADDRESS THE ASSOCIATED CONFLICTS OF INTEREST. Status: Final Sanction Detail: KIS CONSENTED TO THE ENTRY OF AN ORDER WITH THE SEC (THE "ORDER"), WHICH FOUND THAT KIS WILLFULLY VIOLATED RULE 15L-1(A)(1) OF THE EXCHANGE ACT AND SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. WITHOUT ADMITTING OR DENYING THE SEC'S FINDINGS, KIS HAS AGREED TO A CEASE-AND-DESIST ORDER, A CENSURE, AND A CIVIL MONEY PENALTY OF $223,228. Summary: IN ON MAY 21, 2024, KIS CONSENTED TO THE ENTRY OF AN ORDER WITH THE SEC (THE "ORDER"), WHICH FOUND THAT KIS WILLFULLY VIOLATED RULE 15L-1(A)(1) OF THE EXCHANGE ACT AND SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. WITHOUT ADMITTING OR DENYING THE SEC'S FINDINGS, KIS HAS AGREED TO A CEASE-AND-DESIST ORDER, A CENSURE, AND A CIVIL MONEY PENALTY OF $223,228. ACCORDING TO THE ORDER, BETWEEN JUNE 30, 2020 AND FEBRUARY 2022, KEY INVESTMENT SERVICES FAILED TO COMPLY WITH REGULATION BI BY RECOMMENDING, THROUGH ITS REGISTERED REPRESENTATIVES AND INVESTMENT ADVISER REPRESENTATIVES, THAT CERTAIN OF ITS BROKERAGE CUSTOMERS AND ADVISORY CLIENTS TRANSFER SECURITIES FROM KEY INVESTMENT SERVICES ACCOUNTS TO NEW INVESTMENT ACCOUNTS WITH KEY INVESTMENT SERVICES' AFFILIATE KEY PRIVATE BANK, A WEALTH MANAGEMENT FIRM THAT IS PART OF THE SAME PARENT ORGANIZATION, WITHOUT DISCLOSING THAT THE REPRESENTATIVES WOULD RECEIVE COMPENSATION FOR MAKING THE RECOMMENDATIONS AND FOR ANY SECURITIES TRANSFERS, AND THEREFORE HAD A CONFLICT OF INTEREST. THE ORDER FURTHER FINDS THAT KEY INVESTMENT SERVICES' WRITTEN POLICIES AND PROCEDURES WERE NOT REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH KEY INVESTMENT SERVICES' DISCLOSURE OBLIGATIONS UNDER REGULATION BI AND THE ADVISERS ACT WITH REGARD TO CONFLICTS OF INTEREST ASSOCIATED WITH THE RECOMMENDATIONS TO TRANSFER SECURITIES OUT OF KEY INVESTMENT SERVICES BROKERAGE AND ADVISORY ACCOUNTS TO INVESTMENT ACCOUNTS HELD AT KEY PRIVATE BANK OR TO IDENTIFY AND ADDRESS THE ASSOCIATED CONFLICTS OF INTEREST.

Allegations: THE SEC PROCEEDINGS ARISE OUT EMPLOYEES COMMUNICATED BOTH INTERNALLY AND EXTERNALLY BY PERSONAL TEXT MESSAGES ("OFF-CHANNEL COMMUNICATIONS"). FROM AT LEAST JANUARY 2019, KIS AND KBCM EMPLOYEES SENT ANDRECEIVED OFF-CHANNEL COMMUNICATIONS THAT RELATED TO THE BROKER-DEALER BUSINESSES OPERATEDBY KIS AND KBCM, AND WITH RESPECT TO KIS'S INVESTMENT ADVISORY BUSINESSES RELATED TO RECOMMENDATIONS MADE OR PROPOSED TO BE MADE AND ADVICE GIVEN OR PROPOSED TO BE GIVEN.RESPONDENTS DID NOT MAINTAIN OR PRESERVE THE SUBSTANTIAL MAJORITY OF THESE WRITTEN COMMUNICATIONS. RESPONDENTS' FAILURES WERE FIRM-WIDE AND INVOLVED EMPLOYEES AT VARIOUS LEVELS OF AUTHORITY. KIS'S AND KBCM'S SUPERVISORS, WHO WERE RESPONSIBLE FOR SUPERVISING JUNIOR EMPLOYEES, ROUTINELY COMMUNICATED OFF-CHANNEL USING THEIR PERSONAL DEVICES. IN FACT, MANAGING DIRECTORS THEMSELVES FAILED TO COMPLY WITH KIS AND KBCM'S POLICIES BY COMMUNICATING USING NON-KIS OR KBCM APPROVED METHODS ON THEIR PERSONAL DEVICES ABOUT KIS'S OR KBCM'S BROKER DEALER. KIS'S AND KBCM'SWIDESPREAD FAILURE TO IMPLEMENT THEIR POLICIES AND PROCEDURES THAT PROHIBIT SUCH COMMUNICATIONS LED TO THEIR FAILURE TO REASONABLY SUPERVISE THEIR EMPLOYEES WITHIN THE MEANING OF SECTION 15(B)(4)(E) OF THE EXCHANGE ACT WITH RESPECT TO KIS AND KBCM. DURING THE TIME PERIOD THAT KIS AND KBCMFAILED TO MAINTAIN AND PRESERVE OFF CHANNEL COMMUNICATIONS THAT THEIR EMPLOYEES SENT AND RECEIVED RELATED TO KIS'S AND KBCM'S BROKER-DEALER AND KIS'S INVESTMENT ADVISER, KIS AND KBCM HAVE INITIATED A REVIEW OF THEIR RECORDKEEPING FAILURES AND BEGUN A PROGRAM OF REMEDIATION. Status: Final Sanction Detail: THE FIRM IS ORDERED TO CEASE AND DESIST; IS CENSURED; SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATED IN THE ORDER; AND SHALL, JOINTLY AND SEVERALLY, PAY A CIVIL MONEY PENALTY IN THE AMOUNT OF $10,000,000 TO THE SEC. THE CIVIL PENALTY WAS PAID TO THE SEC ON 2/13/2024

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN SUPERVISORY SYSTEMS AND PROCEDURES THAT WERE REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH ITS SUITABILITY OBLIGATIONS WHEN RECOMMENDING CERTAIN UNIT INVESTMENT TRUSTS (UITS), WHICH INVESTED IN LEVERAGED CLOSED-END FUNDS. THE FINDINGS STATED THAT THE FIRM ALSO FAILED TO PROVIDE REASONABLE GUIDANCE OR TRAINING TO ITS REGISTERED REPRESENTATIVES, INCLUDING SUPERVISORS, ABOUT THE POTENTIAL RISKS AND VOLATILITY OF THESE PRODUCTS. ALTHOUGH THE FIRM MANUALLY REVIEWED THESE TRANSACTIONS, IT FAILED TO IDENTIFY OR REASONABLY FOLLOW UP ON RED FLAGS IN APPROXIMATELY 100 RECOMMENDED PURCHASES OF UITS THAT RAISED SUITABILITY CONCERNS DUE TO THE CUSTOMER'S RISK TOLERANCE AND INVESTMENT PROFILE. THE FIRM HAS SINCE UNDERTAKEN SIGNIFICANT EFFORTS TO ADDRESS SUPERVISORY AND OPERATIONAL ISSUES THAT FINRA RAISED DURING ITS INVESTIGATION, INCLUDING INDEPENDENTLY RETAINING COMPLIANCE AND PRODUCT CONSULTANTS. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO ENFORCE ITS SUPERVISORY PROCEDURES THAT REQUIRED BOTH THE COLLECTION AND DOCUMENTATION OF CUSTOMER-SPECIFIC SUITABILITY FACTORS ON ACCOUNT UPDATE FORMS WHEN MAKING NEW RECOMMENDATIONS OF SECURITIES TO EXISTING CUSTOMERS. THE FIRM ADDRESSED THE PROBLEM BY AUTHORIZING REGISTERED REPRESENTATIVES TO ENTER ACCOUNT UPDATE INFORMATION DIRECTLY INTO THE FIRM'S SYSTEM, WITH CONFIRMATIONS SENT TO THE CUSTOMERS, AND AMONG OTHER THINGS, BLOCKING NEWLY SOLICITED TRADES UNTIL THE ACCOUNT UPDATE FORM HAD BEEN OBTAINED OR THE INFORMATION HAD BEEN OTHERWISE ENTERED INTO THE FIRM'S SYSTEMS. THE FINDINGS ALSO INCLUDED THAT THE FIRM PROVIDED INACCURATE INFORMATION TO CUSTOMERS IN APPROXIMATELY 189 SWITCH DISCLOSURE LETTERS (SDLS) REGARDING THE SALES CHARGES, COSTS, AND EXPENSES OF THE UITS. ALTHOUGH THE FIRM ALSO PROVIDED THE CUSTOMERS WITH A COPY OF THE PROSPECTUSES FOR THE UITS, WHICH INCLUDED A FEE TABLE, THE INACCURATE INFORMATION ON THE SDLS POTENTIALLY CONFUSED CERTAIN CUSTOMERS BY MAKING SWITCHING INTO THE NEW UIT APPEAR MORE FINANCIALLY ADVANTAGEOUS. THE FIRM'S COMPLIANCE DEPARTMENT IDENTIFIED THROUGH ITS SURVEILLANCE FUNCTION THAT ITS SDLS WERE NOT ALWAYS DISCLOSING, COMPLETELY OR ACCURATELY, THE FEES ON UIT SWITCHES. THE COMPLIANCE DEPARTMENT ISSUED GUIDANCE TO ITS SALES FORCE, INCLUDING GUIDANCE REGARDING THE CALCULATION OF FEES, WHICH REDUCED BUT DID NOT ELIMINATE THE EXCEPTION RATES PREVIOUSLY IDENTIFIED ON THE SDLS. THE FIRM EVENTUALLY CORRECTED THE PROBLEM WHEN IT ELIMINATED THE MANUAL ESTIMATION AND TRANSCRIPTION OF SALES CHARGES AND/OR EXPENSES AND INSTEAD ATTACHED TO THE SDL A COPY OF THE FEE TABLE FROM THE UIT PROSPECTUS. Status: Final Sanction Detail: AN AWC WAS ISSUED IN WHICH THE FIRM WAS CENSURED, FINED $425,000, ORDERED TO PAY $589,221.66, PLUS INTEREST, IN RESTITUTION TO CUSTOMERS, ORDERED TO PAY DISGORGEMENT TO CUSTOMERS IN THE AMOUNT OF $134,169.40, PLUS INTEREST. THE FIRM IS ALSO REQUIRED, WITHIN 120 DAYS OF THE DATE THE AWC, TO CERTIFY IN WRITING TO FINRA THAT IT HAS IMPLEMENTED SUPERVISORY SYSTEMS AND WRITTEN SUPERVISORY PROCEDURES REASONABLY DESIGNED TO ADDRESS EACH OF THE AREAS OF CONDUCT IDENTIFIED IN THE AWC, AND ACHIEVE COMPLIANCE WITH SUITABILITY REQUIREMENTS FOR UNIT INVESTMENT TRUST (UIT) TRANSACTIONS. IN DETERMINING THE APPROPRIATE SANCTION IN THIS MATTER, FINRA CONSIDERED, AMONG OTHER FACTORS THAT THE FIRM PREVIOUSLY PAID $470,818.75 IN RESTITUTION TO COMPLAINING AND NON-COMPLAINING CUSTOMERS (THOSE CUSTOMERS WHO ALREADY RECEIVED PAYMENT FROM THE FIRM ARE NOT RECEIVING RESTITUTION AS PART OF THIS AWC).