Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Raymond Smith (Smith), currently associated with Smith, Brown & Groover, Inc., has at least one disclosable event. These events include one tax lien, alleging that Smith recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on December 11, 2024.
On November 6, 2024, Respondent and Smith, Brown & Groover, Inc. (‘SBG’), entered into an Acceptance, Waiver and Consent (‘AWC’) with FINRA wherein, without admitting or denying any findings, Respondent consented to findings that, between July 2014 and February 2018, Respondent and SBG recommended a trading strategy, developed by Respondent, to 350 retail customers, 260 of whom were Respondent’s customers, without fully understanding the features and risks of the highly risky and complex strategy or the exchange-traded note (ETN) that the strategy primarily invested in, and failed to reasonably supervise the suitability of the trading strategy by failing, among other things, to establish procedures for, or evaluate, the reasonable-basis suitability of products like the ETN or over-concentration in such products that would create a risk of loss inconsistent with customers’ investment profiles. According to the AWC’s findings, Respondent and SBG did not have a reasonable basis to recommend the trading strategy to any customer because contrary to guidance in the ETN’s disclosure documents, Respondent and SBG invested customers in the ETN for an extended period, an average of 72 days, including through periods of high volatility; Respondent and SBG conducted flawed testing of the trading strategy that relied on incomplete data and overestimated potential returns; and, in early 2018, customer accounts participating in the trading strategy were fully invested in the ETN when a surge in market volatility caused the ETN to drop in price and the issuer to call the ETN, resulting in the holders of the ETN, including the firm’s customers, suffering near total losses on their investments.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the financial advisor must use their knowledge of both their reasonable diligence into investment options as well as their knowledge of the investor’s client specific needs to consider reasonably available investment options. Those investment options must allow the broker to determine that there is a reasonable basis that the recommendation is in the retail investor’s best interest.
In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
and Azary entered the securities industry in 1981. Azary has been registered as a Broker with Finalis Securities LLC since 9-07.
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.
