In November 2021 a customer complained that Da Cruz violated the securities laws by alleging that Da Cruz during the course of 2019 and 2020, EFG, failed to provide the expected and agreed upon level of service specifically with regards to complex option trading causing losses. The investor alleged damages of $4.1 million and the claim is currently pending.
An option is a contract that allows an investor to buy or sell an underlying security at a predetermined price over a certain period of time. Buying an option that allows you to buy shares at a later time is called a “call option,” and buying an option that allows you to sell shares at a later time is called a “put option.” Options are considered derivative securities because their price is derived from the value of the securities or other underlying instruments. The value change in options as they approach expiration is what is called time decay – meaning their value decays over time as expiration nears. Accordingly, an options trading strategy involving many options trades needs to be managed closely. Due to the risks of trading options FINRA has special rules and requirements related to their trading and to qualify investors for options trading.
Under the securities laws brokers are obligated to act in their clients’ best interests and provide only suitable recommendations for investments to the client. In addition, the SEC has promulgated “Regulation Best Interest” which according to the SEC enhanced the broker-dealer standard of conduct beyond existing suitability obligations and requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. Regulation Best Interest and the fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest.
Brokers have an obligation to first obtain and evaluate sufficient information about a retail investor to form a reasonable basis to believe the account recommendations are in the retail investor’s best interest. Recommendations cannot be based on materially inaccurate or incomplete information. Material information always includes information concerning the investor as well as the cost of the recommendation. Types of costs that must be considered including account fees, commissions and transaction costs, tax considerations, as well as indirect costs.
In addition to obligation to understand the customer the broker must also investigate the product being sold. FINRA firms have an obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. A brokerage firm has a special relationship with a customer from the fact that in recommending the security, the broker represents to the customer that a reasonable investigation has been made. Accordingly, a brokerage firm may not rely blindly upon the issuer for information concerning a company in lieu of conducting its own reasonable investigation.
Additional investor safeguards include broker disclosure requirements. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters. FINRA has acknowledged that recent studies provide evidence of the predictability of future regulatory and customer complaint issues for brokers with a history of such events. FINRA’s Office of the Chief Economist (OCE) published a study showing the predictability of disciplinary and disclosure events based on past similar events. The OCE study showed that past disclosure events, including regulatory actions, customer arbitrations and litigations of brokers, have significant power to predict future investor harm. The data shows that where a member firm on-boards brokers with a significant history of misconduct there is a high likelihood that the broker will continue to engage in similar behavior.
Da Cruz entered the securities industry in 2009. From October 2013 until March 2017 Da Cruz was registered with Citi International Financial Services LLC. Since March 2017 Da Cruz has been registered with EFG out of the firm’s Miami, Florida office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.