In addition to specifically finding that Sheridan committed fraud and made unsuitable recommendations in Claimants accounts, FINRA also found that JP Turner general sales practice with regard to non-traditional ETFs and mutual funds was inappropriate. On December 4, 2013, FINRA released a Letter of Acceptance, Waiver, and Consent (AWC) concerning JP Turner’s non-traditional ETFs sales practices and excessive mutual fund switches and fined the firm $707,559.53. FINRA v. J.P. Turner & Company, L.L.C., AWC No. 2011026098501 (FINRA, January 2013). According to FINRA’s investigation, JP Turner failed to establish and maintain supervisory systems related to leveraged and inverse ETF sales and mutual fund purchases.
In another churning related action, on November 8, 2013, the SEC issued a similar order against JP Turner finding that Michael Bresner (Bresner), as head of supervision, failed to properly supervise firm employees. The SEC Order found that JP Turner employed an Account Activity Review System (AARS) to monitor customer accounts for signs of churning. The SEC found that the average number of accounts flagged by the AARS system for churning was shockingly high for each quarter in 2008-2009 and was between 300 and 325 accounts and included more than 100 JP Turner registered representatives. In sum, the SEC discovered that no one at JP Turner was willing to take responsibility in determining whether churning took place in a client’s account – a problem that directly affected the claimants in this case.
In the case of one of the claimant’s in the filed action, FINRA found that the couple opened a joint account with Sheridan at JP Turner and that on the new account forms Sheridan listed the customers’ investment objectives as “safety of principal” and “growth.” From in or about January 2007 through in or about December 2009, FINRA found that Sheridan recommended and effected approximately 38 mutual fund switches in their account and approximately 80 mutual fund purchases. FINRA found that Sheridan recommended the transactions in the clients’ account without having reasonable grounds for believing that such transactions were suitable for the client in view of the size and frequency of the transactions, the transaction costs incurred, and in light of the customers’ financial situation, investment objectives, and needs. During the period examined, the client lost approximately $127,000 through Sheridan unsuitable recommendations while Sheridan received commissions of approximately $35,000 from this activity.
In the case of a second client, an IRA account was opened for the client who was 65 years old and retired at the time. On the new account forms, Sheridan listed the investment objectives as safety of principal and growth. From about February 2007, through December 2009, FINRA found that Mr. Sheridan recommended approximately 23 mutual fund switches and 46 mutual fund transactions in the account resulting in having to pay additional sales charges with each new purchase. FINRA found that during the examined period, the client lost approximately $83,000 through Mr. Sheridan’s unsuitable recommendations and Mr. Sheridan received commissions of approximately $19,000.
In a third client’s account FINRA found that the client opened an IRA account with Sheridan at JP Turner, was 60 years old and retired, and on the new account form Sheridan listed her investment objective as “Growth.” FINRA found that from January 2007, through December 2009, Sheridan recommended approximately 48 mutual fund switches and approximately 100 mutual fund transactions in her account. FINRA found that during the period examined the client lost approximately $312,856 through unsuitable recommendations and Sheridan received commissions of approximately $97,000.
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