South Florida Arbitration & Litigation Lawyer Blog
Unsuitable Naked Put Option Strategy FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Walter Louis Howerton (CRD #251564, Registered Principal, Modesto, California) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $12,500 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Howerton’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Howerton consented to the described sanctions and to the entry of findings that he made unsuitable options recommendations in a customer’s account. The findings stated that Howerton began implementing a naked put selling strategy he recommended in the customer’s account in order to generate income. The findings also stated that over the next three years, Howerton recommended numerous naked put sale transactions in the customer’s account; the strategy was generally profitable until it began to result in losses and the customer was forced to close her positions at a substantial loss. The findings also included that Howerton did not have reasonable grounds to believe that the recommendations to sell naked puts were suitable for the customer based on her financial situation and needs; among other relevant considerations, the customer did not have the resources to withstand the magnitude of losses she risked, and ultimately incurred, by selling the naked put options.
The suspension is in effect from October 17, 2011, through April 16, 2012. (FINRA Case #2009020560901).