Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Kyle Chapman (Chapman), previously associated with American Trust Investment Services, Inc., has at least one disclosable event. These events include one tax lien, alleging that Chapman recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on September 05, 2024.
Without admitting or denying the findings, Chapman consented to the sanctions and to the entry of findings that he willfully violated Rule 15l-1(a)(1) under the Securities Exchange Act of 1934 Reg BI) by making a recommendation that was not in the customer’s best interest nor suitable with the customer’s investment profile. The findings stated that Chapman recommended his customer invest $50,000 in a speculative, unrated debt security after the customer reached out to Chapman about investing in the security. The customer’s investment objectives were income and preservation of capital and did not include speculation. Chapman failed to perform reasonable diligence on the security before recommending it to the customer and did not conduct a reasonable review of the offering documents. Chapman earned $1,471 in commissions from these recommendations. The findings also stated that Chapman made negligent misrepresentations and omissions of material fact when recommending the debt security to his customer. Chapman sent third-party risk reports to the customer that assigned a risk score to the debt security with the same risk score of cash. Chapman did not correct the customer’s belief that debt securities were a conservative investment.
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 standard applies when a registered representative is providing investment advice through making recommendations customers and covers securities transaction, investment strategies, and recommendations concerning advice on opening of an account or accounts. 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.
An advisor must understand the type of account, securities, and their client in order to meet their care obligations. The type of securities account has the potential to greatly affect retail customers’ costs and investment returns. Different types of securities accounts can offer different features, products, or services, and not all types of accounts or services would be in every investor’s best interest.
Chapman has been in the securities industry for more than 8 years. Chapman has been registered as a Broker with American Trust Investment Services, Inc. since 2020.
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.
