Articles Posted in FINRA

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.

Former RBC and Ameriprise securities broker Scott Jay Matalon of Jericho, New York was recently barred from the industry by FINRA, a securities regulator.  The Letter of Acceptance, Waiver, and Consent states that Mr. Matalon failed to produce documents or information in response to an investigation regarding an arbitration Statement of Claim which was filed.

Mr. Matalon’s FINRA Brokercheck report lists a criminal charge, as well as a customer complaint seeking $2,500,000 in damages.  The Brokercheck description of the customer complaint references allegations of conversion of funds from the now deceased customer.

Firms that employ securities salespersons can be held liable for the conversion (theft) of customer funds even if the firm claims that its supervisors were not aware of the theft.  Please read here about broker theft and failure to supervise.  If you were a victim of a financial advisor who stole funds from your accounts or investments, please contact our securities fraud lawyers for a free consultation about your case.

Our securities fraud blog has previously addressed the risks to investors regarding inverse and leveraged ETFs.  A new type of ETF has emerged, however, which can carry even higher risks.  The North American Securities Administrators Association recently issued an advisory to investors regarding single stock ETFs.  Inverse and leveraged single stock ETFs are complex instruments which attempt to multiply the returns of a single stock when it goes up (leveraged) or down (inverse).

These investments obviously carry higher risks than if an investor just invests in a single stock, and can include similar risks to using margin to purchase more shares of a stock than you can afford with cash, or risk shorting a stock in the hope that the price declines.  Additionally, similar to inverse and leveraged ETFs that are spread over a sector of stocks, these ETFs reset daily, so if they are held for more than a day the price of the ETF can diverge significantly from the price of the underlying stock.

Financial advisors should not be recommending or purchasing these types of ETFs for retail investors unless the investor understands the risks involved and can afford to take those risks.  Such a recommendation should be suitable and in the best interest of the customer.  If you have lost monies in a single stock ETF that you did not understand or that was not suitable for your risk tolerance, please contact W. Scott Greco for a free attorney consultation about your potential case.

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.

FINRA censured, fined, and ordered restitution payments from Philadelphia, Pennsylvania based Janney Montgomery Scott last month.  The Letter of Acceptance Waiver and Consent (AWC) discussed how two of Janney’s advisors “recommended that 11 customers unsuitably concentrate their accounts in certain energy-sector securities, including master limited partnerships focused on the exploration or development of natural resources” in violation of the FINRA Suitability Rule, 2111.  This subjected the customers to a high risk of loss if oil and gas prices declined.

The AWC discussed the fact that Janney’s supervisory system red flagged these concentrations, but Janney “failed to take reasonable steps to understand the potential risks and rewards.”

In addition to being censured by FINRA, Janney was fined $100,000 and ordered to pay restitution to the customers that had not yet received restitution in the total amount of $145,019.

FINRA recently issued a Letter of Acceptance, Waiver, and Consent relating to J.P. Morgan broker Edward Turley from San Francisco, California that resulted in Mr. Turley being barred from the securities industry by FINRA.

The letter alleges that Mr. Turley has been registered with J.P. Morgan Securities LLC since 2009, and that he was terminated by J.P. Morgan in 2021 for “[l]oss of confidence concerning adherence to firm policies and brokerage order handling requirements.”  According to FINRA, Mr. Turley has had five FINRA multi-million dollar arbitrations filed in 2020 – 2021 relating to allegations regarding sales practice violations and unsuitable trading.  One of these resulted in an arbitration award.

Mr. Turley apparently refused to provide on the record testimony to FINRA in response to a Rule 8210 Request.

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