Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Thomas Mead (Mead), previously associated with Drexel Hamilton, LLC, has at least one disclosable event. These events include one tax lien, alleging that Mead recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on November 18, 2024.
Without admitting or denying the findings, the firm, Ivcic, Mead, Phelan, and Steigerwald consented to the sanctions and to the entry of findings that the firm submitted retail orders for new issue municipal bonds without a basis for designating the orders as retail and with zip codes that were not associated with a retail customer. The findings stated that the firm participated in a number of offerings for new issue municipal bonds as a co-manager or a member of the selling group. The firm did not have retail customers for its orders of new issue municipal bonds. Rather, it submitted such orders on behalf of other broker-dealers who had, in turn, placed orders with the firm. On at least 572 occasions, the firm, through its representatives, submitted orders to the syndicate senior manager that it received from broker-dealer counterparties that it designated as retail without a basis to do so, and, to make it appear that the orders were for bona fide retail customers, included zip codes with the orders that were not associated with a retail customer. Additionally, on at least 44 occasions, the firm received orders from its BD counterparties that exceeded the $1 million per order maximum and, when it submitted the orders it split those orders into multiple, smaller orders to evade the limit set out in the retail period eligibility criteria. The sales of the bonds generated significant commissions for the firm. The findings also stated that Ivcic willfully violated MSRB Rules G-11(k) and G-17, both independently and by acting in contravention of Section 17(a)(2) of the Securities Act of 1933 by submitting orders that violated the retail order period eligibility criteria. FINRA found that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to ensure compliance with the retail period eligibility criteria. Though a significant portion of the firm’s business was participating in underwritings of municipal securities, the firm had no supervisory system in place to determine that the retail orders that it submitted during retail order periods were for genuine retail customers or that the zip codes its representatives submitted with the orders were accurate and associated with a retail customer purchasing the bonds. Moreover, the firm maintained WSPs that unreasonably contained no guidance on complying with the retail order period eligibility criteria set by issuing municipalities. The firm has since enhanced its supervisory systems, including its WSPs. As a result of the supervisory failures, the firm failed to detect the violations of MSRB Rule G-11(k). FINRA also found that Mead as head of the firm’s municipal department failed to reasonably supervise the sales of new issue municipal bonds during the retail order period. Mead failed to reasonably respond to red flags that gave him actual notice of potential misconduct including when a broker-dealer acting as syndicate senior manager for a new issue municipal offering challenged and rejected numerous orders that the firm had designated as retail because it did not believe that the orders were for retail customers. Additionally, another municipal issuer questioned the firm, including Mead, about orders that had been designated as retail that were subsequently traded on the secondary market. However, despite these red flags, Mead failed to take steps to investigate the red flags or to otherwise ensure that the firm and its representatives complied with the retail order period eligibility criteria. Mead failed to take reasonable actions to supervise this activity and Ivcic’s role in it. Mead did not review order tickets to see if they contained zip codes or check with the firm’s counterparties to confirm that the orders those firms were submitting were for bona fide retail customers. Rather, Mead merely reviewed deal folders in a cursory fashion to see if they appeared to conform to the requirements set by issuing municipalities.
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 (Reg BI)‘ 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. The cost of the recommendation and information about the investor are always included in material information. 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. So, rather than depending solely on the issuer for company information, a brokerage firm should conduct its own reasonable investigation.
Another protective measure for investors is the requirement for brokers to disclose. Brokers are required to reveal important events, such as customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters, publicly on their BrokerCheck reports. 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.
Mead has been in the securities industry for more than 53 years. Mead has been registered as a Broker with Drexel Hamilton, LLC since 2010.
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.
