Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Tim Hemingway (Hemingway), currently associated with Smith, Brown & Groover, Inc., has at least one disclosable event. These events include one tax lien, alleging that Hemingway recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on November 06, 2024.
Without admitting or denying the findings, Hemingway consented to the sanctions and to the entry of findings that he recommended a trading strategy to certain of his customers without fully understanding the features and risks of the strategy or the exchange-traded note (ETN) that the strategy primarily invested in, and he did not have a reasonable basis to recommend the strategy to any customer. The findings stated that prior to recommending customers invest in the strategy, Hemingway did not conduct his own due diligence on the strategy or the ETN it primarily invested in. Hemingway did not fully understand how the trading strategy worked or the potential risks and rewards associated with it. For example, he did not understand the risk/reward profile of the ETN or the conditions under which the ETN could lose all its value. The affected customers are being provided partial restitution pursuant to a separate settlement with Hemingway’s member firm.
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 part of 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.
Additional, it should be required to mandate broker disclosures for investor’s protection. Brokers are required by FINRA to reveal the events such as customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters on their public BrokerCheck reports. FINRA has recognized that recent studies offer evidence showing that brokers with a past history of regulatory and customer complaint issues are more likely to have such issues in the future. 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.
Hemingway entered the securities industry in 2005. Hemingway has been registered as a Broker with Smith, Brown & Groover, Inc. since 2005.
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.
