Articles Posted in Disciplinary Actions

The Financial Industry Regulatory Authority (FINRA) has issued a Letter of Acceptance, Waiver, and Consent (AWC) against LPL Financial LLC, a notable member firm in the securities industry. The AWC alleges a series of alleged rule violations that occurred over several years, painting a picture of insufficient supervision and inaccurate information dissemination to customers. Let’s delve into the details of this regulatory action and what it means for investors and the securities industry at large.

Background: LPL Financial LLC

LPL Financial LLC, a long-standing member of FINRA since 1973, operates as a significant player in the securities industry and is one of the larger “independent” FINRA firms. Headquartered in Fort Mill, South Carolina, LPL boasts a considerable network, with over 27,000 registered representatives across more than 18,000 branch offices.  Most advisors who are registered with independent firms operate out of small one or two advisor offices.  Although independent firms have the same supervisory duties and more traditional firms with big branch offices, proper supervision does not always occur.

Lickhai Quach, a Silver Spring, Maryland broker/agent of Transamerica Financial Advisors, Inc., was recently barred by FINRA from association with any FINRA firm.  The FINRA Letter of Acceptance, Waiver, and Consent states that Mr. Quach refused to produce documents or information to investigators as required by FINRA Rule 8210.

Mr. Quach was allegedly under investigation by FINRA as a result of being permitted to resign “while under review by the firm for violating firm’s policy related to borrowing funds from a client.”  Mr. Quach’s FINRA Brokercheck report states that he was registered with Transamerica since 2012.  The report further states that he had one recent customer complaint relating to borrowed funds that settled, and that he was permitted to resign in March, 2023.

Registered financial advisors are generally prohibited from borrowing money from customers under FINRA Rule 3240 except in limited circumstances such as from a family member or other personal relationship.  The loan must also be disclosed and approved by the advisor’s firm.

Miche Jean was a registered securities salesperson with Morgan Stanley in Rockville, Maryland since 2015. However, on November 12, 2020, Morgan Stanley submitted a Termination Notice (Form U5), indicating that they terminated Jean’s employment due to concerns related to his trading strategy for certain clients, potential unauthorized discretion in specific accounts, and incomplete and delayed communication with clients regarding transactions. Furthermore, on March 30, 2021, an amended Form U5 disclosed a customer complaint alleging unauthorized trading with exchange-traded funds (ETFs) during Jean’s tenure at Morgan Stanley.

Then, on November 15, 2022, the Maryland Securities Commissioner issued a Consent Order in which Jean admitted to fraudulent actions during his time with Morgan Stanley in Maryland. Specifically, he was found to have initiated four ACH transfers, totaling $10,182, from a Morgan Stanley customer’s brokerage account to cover his personal credit card expenses.

FINRA, a national self-regulatory securities regulator, recently barred Mr. Miche from the industry pursuant to a decision by its Office of Hearing Officers.

The Securities and Exchange Commission (SEC) has taken significant action against Bruderman Asset Management, now known as Gary Goldberg Planning Services, LLC (BAM), and its founder, Matthew J. Bruderman. The SEC has instituted public administrative and cease-and-desist proceedings against these entities, with a final Order found here, citing violations of the Investment Advisers Act of 1940. The proceedings revolve around the alleged misuse of client funds by BAM, which raised over $6.1 million from investment advisory clients and directed these funds towards entities with ties to Bruderman. The SEC alleges that these actions violated various sections of the Advisers Act, including Sections 206(2) and 206(4), and Rule 206(4)-7.

According to the SEC Order, between February 2017 and August 2021, BAM, under Bruderman’s direction, persuaded at least thirteen investment advisory clients to invest substantial amounts totaling $6.1 million in entities where Bruderman had significant ownership and decision-making authority. Shockingly, these clients were not informed that their investments would temporarily be diverted to cover expenses unrelated to their intended investments or to repay loans made by Bruderman himself.

One particularly concerning example involved a $500,000 equity investment, where $400,000 was transferred to Bruderman’s personal bank account to repay a loan owed by one of the entities. The clients invested based on BAM’s advice, unaware of the temporary diversion of their funds. Despite BAM’s written policies requiring disclosure of material conflicts of interest, these conflicts remained undisclosed, leaving clients in the dark about the use of their investments.

On July 25, 2023, the Financial Industry Regulatory Authority (FINRA) issued a Letter of Acceptance, Waiver, and Consent (AWC) against LPL Financial LLC, a prominent independent securities broker headquartered in Fort Mill, South Carolina. This disciplinary action followed a series of egregious violations that involved the conversion/theft of approximately $2.4 million of customer funds by two of the firm’s brokers.

Background

The AWC against LPL Financial LLC was the result of a failure to reasonably supervise the transmittal of customer funds, which enabled two firm registered representatives to convert substantial sums of money for their personal use. The findings by FINRA in the AWC are outlined below:

FINRA has announced on its website that it has barred Tennessee financial advisor D. Wray Rodgers of Collierville.  According to FINRA’s Letter of Acceptance, Waiver, and Consent, Mr. Rodgers was registered with the firm Vining-Sparks IBG, LLC, and FINRA had begun an investigation regarding “whether Rodgers engaged in an outside business activity without providing prior written notice to his member firm and whether he misused customer funds.”

Vining-Sparks had filed a U-5 filing for Mr. Rodgers stating that he had voluntarily resigned from the firm in May 2022.  According to the AWC, Mr. Rodgers failed to appear for related on the record testimony, and he and FINRA agreed to a sanction of a bar from registering with FINRA securities Broker-Dealers.

Mr. Rodgers’ FINRA Brokercheck report shows one customer complaint relating to an alleged failure to disclose risk from 2011, with a $105,000.00 settlement.

The online FINRA Brokercheck report for former Western International broker Chris Kennedy shows eleven different customer complaints.  These complaints include allegations of unauthorized trading, unsuitability, breach of fiduciary duty, and other wrongful conduct.  Many of the complaints have been settled, with one settled for over 2.7 million dollars.

The Brokercheck report also states that Western International discharged Mr. Kennedy in 2021 after allegations were made about unauthorized options trading.

Mr. Kennedy was registered with Western at a branch office in Woodland Hills, California and Tarzana, California.

FINRA recently suspended an Edward Jones financial advisor from Sunset Beach, California for borrowing money from a customer without firm authorization.  The FINRA Letter of Acceptance, Waiver and Consent against Scott P. Smith can be found here.

According to the AWC, Mr. Smith borrowed money in five different loans from a single customer without advising his firm about the loans.  Loans from customers to stock brokers are generally prohibited unless they fall into several limited exceptions such as when the customer is a family member.  The loans were allegedly discovered when the customer died and the estate raised questions about the loans.  Mr. Smith subsequently resigned from Edward Jones while under investigation.

The FINRA AWC imposed a year suspension on the financial advisor, and a $10,000 fine.

New Jersey securities broker Carz Levinski Craffey (aka Caz Craffy) was recently barred from the securities industry by securities regulator FINRA.  Mr. Craffy had been registered with Monmouth Capital Management and previously was registered with Newbridge Securities Corp.

Mr. Craffy’s Brokercheck report from FINRA discloses that he was discharged by Monmouth for failing to “disclose Outside Business Activity.”  It also states that he has one customer complaint pending with allegations of negligence, fraud, breach of contract and breach of fiduciary duty.

The FINRA Letter of Acceptance, Waiver and Consent states that Mr. Craffy failed to appear to testify regarding his “potential conversion of customer money, loans or gifts from customers, active trading in customer accounts, and failure to fully disclose certain outside business activities.”  He was barred from associating with any FINRA member in all capacities.

After being charged by the SEC with Regulation Best Interest violations relating to GWG, Western International Securities has now been censured and fined by FINRA for a different alternative investment product – non traded REITs.

REITs – Real Estate Investment Trusts – are investment companies that invest in a portfolio of various real estate properties.  A non traded REIT is not traded on any exchange, and often is illiquid with no short term method of selling the investment.

FINRA charged Western with failing to implement and follow a reasonable supervisory system to ensure that REIT sales were suitable for the customers to whom they were recommended.  Although Western had a REIT suitability form, they system did not require supervisors approving sales to review important suitability information from new account forms such as age, objectives, risk tolerance, income, etc.

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