In 2017, Blakezuniga allegedly violated his firm’s policy when he borrowed $775,000 from two of his firm’s customers and did not repay the full principal amount for either of these loans. According to FINRA, it is generally prohibited for an investment advisor to borrow money from a client unless certain conditions are met, which did not occur here. The purpose of this rule is to avoid serious potential conflicts of interest and risks associated with an investment adviser, who is a fiduciary, borrowing his or her client’s money. Furthermore, Blakezuniga was allegedly untruthful when he completed his firm’s annual compliance questionnaire and answered no to a question that asked if he ever borrowed money from a customer which was false.
Also in 2017, Blakezuniga was fined and suspended for 22 months when he recommended approximately 1,280 transactions in inverse and inverse leveraged exchange traded funds (non-traditional ETFs) in 85 customer accounts without a reasonable basis for the recommendations. In fact, Blakezuniga recommended that his customers hold these non-traditional ETF’s for periods ranging from 30 days to several years despite the fact that these investments were not meant to be held for long periods of time. According to FINRA, an investment adviser is always required to have a reasonable basis for making investment recommendations to clients. This is known as the “suitability” standard, which requires a recommendation based on a client’s idiosyncratic profile such as their individual financial situation, investment objectives, risk tolerance, and other factors.
In 2011, Blakezuniga faced civil sanctions when he engaged in undisclosed outside business activities. Mr. Blakezuniga allegedly failed to disclose to his broker-dealer his position as CEO of an entity in which he issued promissory notes. According to FINRA, an investment advisor, as a fiduciary, always has a legal and ethical obligation to disclose any conflicts of interest to his or her investment firm. When an investment adviser knows of a conflict of interest that can impact his or her ability to provide objective advice to clients, he or she must disclose it to their investment firm’s compliance department. This ensures firms can implement safeguards to protect clients.
In cases where an investment advisor has a conflict of interest, they are more likely to recommend investments that are not suitable for the client or that carry higher fees or commissions, even if there are better and more cost-effective alternatives available. This can result in the client paying more in fees and expenses and earning lower returns on their investments, leading to financial losses over time.
In cases where an investment advisor violates FINRA’s suitability rule, this can result in the client losing money if the investment performs poorly or fails to meet their financial goals. To minimize the risk of losing money due to unsuitable investment recommendations, clients should carefully vet their investment advisors and ask about their investment philosophy, track record, and approach to risk management. Clients should also regularly review their investment portfolios and performance and raise any concerns or questions with their advisor.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms’ failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.