Articles Posted in Unsuitable Investment Recommendations

Securities and Exchange Commission v. John C. Maccoll, No. 2:18-cv-12473-SFC-DRG (E.D. Michigan filed August 9, 2018)

The Securities and Exchange Commission recently charged a former registered representative with defrauding his brokerage customers out of nearly $4 million in a long-running investment scam.

According to the SEC’s complaint, John C. Maccoll, who was affiliated with the Birmingham, Michigan branch of a nationwide registered broker dealer and investment adviser, used high pressure sales tactics to solicit at least 15 of his retail brokerage customers to invest in what he described as a highly-sought-after private fund investment. Most of the injured customers were elderly and retired and invested through their retirement accounts. Maccoll told his customers that the purported fund investment would allow them to diversify their portfolios, receive annual investment returns as high as 20%, and give them investment growth potential that was better than the growth they received in their brokerage accounts. As alleged in the complaint, Maccoll’s statements to his customers were false – he did not invest the customers’ money but stole it for his own personal use. In total, the customers invested nearly $4 million in the fraudulent scheme. To conceal the scheme, Maccoll allegedly instructed his customers not to tell others about the purported fund investment, provided some of his customers with fake account statements reflecting fictitious returns, and paid over $400,000 in Ponzi-like payments to certain of the customers to keep the scheme alive.

Kelly Marvin Barnett (CRD #4127608, Sarasota, Florida):

Recently, the Financial Industry Regulatory Authority announced that Kelly Marvin Barnett executed and Acceptance, Waiver and Consent in which Barnett was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, Barnett consented to the sanctions and to the entry of findings that he used discretion in five customers’ accounts without written authorization or acceptance of the accounts as discretionary. The findings stated that a customer of Barnett’s died of a heart attack. Barnett was unaware of his customer’s death and two days after his customer’s death, Barnett placed three trades in the customer’s account for the sale of two ETFs and for the purchase of an ETF. Four days after his customer’s death, Barnett placed two additional trades in his customer’s account for the purchase of a UIT and for the sale of an ETF. Barnett’s customer had orally granted him discretion to place trades in the account but had never given him a written grant of authorization to use discretion. Further, Barnett’s member firm had never accepted the account as a discretionary account. The findings also stated that Barnett exercised discretion in four additional customer accounts without a written grant of authorization and without having the accounts accepted as discretionary. The customers had orally agreed to a trading strategy. When Barnett could not reach the customers, he executed the planned strategy without speaking to the customers first. In total, Barnett executed 25 discretionary trades in the four customers’ accounts. The findings also included that Barnett maintained handwritten notes of customer contact in the firm’s customer files in order to document conversations with clients regarding orders and recommendations.

With regards to the trades in Barnett’s deceased customer’s account, after his customer’s death, Barnett created two handwritten documents falsely stating that he had spoken to the customer on the dates of the trades and that the customer had approved the transactions. Barnett maintained the falsified handwritten notes in the firm’s customer file to substantiate his contact with his customer on the dates of the trades. FINRA found that Barnett maintained blank, signed switch disclosure forms in the firm’s customer files. The forms contained important disclosures regarding UIT exchanges. On 19 occasions, Barnett used the blank signed forms to effect UIT exchanges without having each client sign a completed switch disclosure form. Each form detailed the UIT that was being sold, the UIT that was being purchased, provided the reasons for the switch, and detailed the charges associated with the switch. As a result, the switch forms were an instruction given or received in connection with the purchase or sale of a security and was a record that the firm was required to maintain. By completing the blank, signed forms to falsely evidence acknowledgement of disclosures, Barnett falsified the exchange forms and caused the firm’s books and records to be inaccurate. The suspension is in effect from June 4, 2018, through December 3, 2018. (FINRA Case #2015048320901).

Brian John Hussey Jr. (CRD #4640067, Zephyrhills, Florida)

Recently, Brian John Hussey, Jr. entered into an Acceptance, Waiver and Consent with the Financial Industry Regulatory Authority, in which Hussey was suspended from association with any FINRA member in all capacities for seven months. Apparnelty, in light of Hussey’s financial status, no monetary sanction was imposed. Hussey, without admitting or denying the findings consented to the sanction and to the entry of findings that he made unsuitable recommendations to  a customer that she sell 100 percent of the mutual fund positions in her individual retirement account (IRA) and invest the proceeds in penny stocks focused on the marijuana business. The findings stated that the thinly-traded penny stocks recommendation was inconsistent with the client’s investment objectives and financial situation. In addition, the transactions were solicited in violation of Hussey’s member firm’s policies prohibiting the solicitation of penny stocks. In order to effect the transactions, Hussey mismarked solicited trades as unsolicited in the customer’s accounts to avoid the firm’s policy preventing its representatives from soliciting the purchase of penny stocks. Moreover, the SEC issued an Order suspending all trading in one of the penny stocks.  Hussey had already heavily invested the customer’s accounts in that penny stock. Three days after trading resumed in the penny stock, Hussey purchased an additional $22,679.50 in the account. Hussey eventually had 100 percent of the customer’s portfolio concentrated in the two penny stocks. After the firm made inquiries regarding the trading activity in the customer’s IRAs, and to avoid future compliance issues, Hussey’s recommended that the customer move her account to another FINRA member firm, where Hussey, with the customer’s permission, engaged in discretionary trading of her account using her login credentials. Hussey did not disclose his exercise of discretion or his discretionary authority in this third party account to his firm or to the executing member firm. The customer complained to Hussey’s firm, asserting $58,572 of market losses in her accounts with the firm and the third party firm account, in addition to damages from the lost opportunity to participate in market gains. Hussey’s firm settled for $67,019.24, which he is obligated to pay back to the firm. The findings also stated that as stated above, Hussey mismarked order tickets for trades as unsolicited when, in fact, he solicited the trades and therefore caused his firm to maintain false and inaccurate books and records.  The suspension is in effect from June 18, 2018, through January 17, 2019. (FINRA Case #2017053342601).

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Capitol Securities Management, Inc. (CRD #14169, Glen Allen, Virginia)

FINRA recently announced that on or about May 25, 2018, Capitol Securities Management, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured, fined $100,000 and ordered to pay $44,740.33, plus interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to detect and prevent unsuitable short-term trading in unit investment trusts (UITs). The findings stated that the firm had no procedures to specifically address the suitability concerns raised by short-term trading in UITs. While the firm instituted a policy requiring the submission of a UIT switch form to detect the premature sales of UITs, the policy was not enforced. In addition, the firm had no surveillance or exception reports designed to detect unsuitable short-term trading of UITs. At least three firm representatives recommended and effected short-term trades of UITs in their customers’ accounts. In addition, on several occasions, these representatives recommended that their customers use the proceeds from the short-term sale of a UIT to purchase another UIT with identical investment objectives. As a result of this trading, customers paid excess sales charges in the amount of approximately $44,740.33. The findings also stated that the firm failed to retain instant messages from employees, including its senior management and compliance staff. (FINRA Case #2017052215401).

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Unauthorized Trading and Unauthorized Discretion Boca Raton, Florida, FINRA Arbitration Attorney:

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

WFG Investments, Inc. – Fort Lauderdale, Florida Unsuitable, Unauthorized Discretion and Outside Business Activity FINRA Arbitration Attorney:

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

Popular Securities, Inc. n/k/a Popular Securities, LLC – Boca Raton, Florida Puerto Rico Bond and Closed-End-Fund Over Concentration and Unsuitablity FINRA Arbitration Attorney:

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

Mutual Fund Unsuitability and Breach of Fiduciary Duty – Boca Raton, Florida FINRA Arbitration and Litigation Attorney.

A mutual fund is a fund operated by an investment company that raises money from shareholders and invests in bonds, options, currencies, money market securities, futures, or stocks.  Mutual funds are offered by prospectus.  The prospectus describes, among other things, the investment objectives of the mutual fund, the types of investments within the fund, the investment strategies utilized by the fund managers and the risks associated therewith.

Mutual funds offer investors the advantages of diversification and professional management.  A management fee is charged for these services, typically between 0.5% and 2% of assets per year.  Funds also levy other fees such as a 12B-1, exchange fees and other administrative charges.  Funds that are sold through brokers are called load funds and those sold to investors directly from the fund companies are called no-load funds.  Mutual fund shares are redeemable on demand at net asset value by shareholders.

Fort Lauderdale, Boca Raton, Delray Beach, Lantana, Lake Worth and West Palm Beach, Florida Elder Financial Abuse and Exploitation Litigation and FINRA Arbitration Attorney:

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers

The Securities and Exchange Commission recently charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

June 2014 Disciplinary and Other FINRA Actions

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