Unauthorized Trading

Top Merrill Lynch Broker Thomas Buck Terminated Under Unusual Circumstances

April 22, 2015 | by Staff Attorney

According to news sources, Thomas Buck (Buck) and his daughter Ann Buck, were recently terminated by Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), now known as Bank of America, NA (Bank of America) under unusual circumstances. Buck’s team managed nearly $1.5 billion in investor assets at the time. Buck has been associated with Merrill Lynch since 1982 according to Financial Industry Regulatory Authority (FINRA) records and became one of the company’s largest producers.

According to news sources, Buck was terminated for allegedly making unauthorized trades in client accounts. Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. The broker must first discuss all trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature.

The termination occurred on March 6, 2015, and stunned the firm’s other employees because the termination appeared out of the blue and without explanation leading to rumors. One person was quoted in the news saying “There is a lot more out there. I think it’s a little bit of heavy-handedness on Merrill’s part. Tom was shocked.”

Former Merrill Lynch Broker Kwok Chiu Sanctioned Over Unauthorized Discretionary Trading

March 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned broker Kwok Chiu (Chiu) concerning allegations that between March and June 2013, while associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Chiu exercised discretionary power in two customer accounts with only oral authorization by making 162 transactions without obtaining prior written authorization from the customers. Under NASD Conduct Rule 2510(b) Chiu was required to provide written authorization to his firm in order to engage in discretionary trading activity.

Chiu entered the securities industry in 1996. In 2005 he was became registered through Merrill Lynch until October 14, 2013, at which time Merrill Lynch filed a Uniform Termination Notice stating that Chiu was discharged for conduct involving the exercise of discretion in non- discretionary customer accounts. Thereafter, in October 2013, Chiu has become registered as a broker with Gilford Securities Incorporated.

In addition to FINRA’s claims, Chiu’s public disclosures reveal that the broker has been subject to at least four customer complaints. These statistics are troubling because so many customer complaints are rare. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. These disclosures do not necessarily have to include customer complaints but can include IRS tax liens, judgments, and even criminal matters. The number of brokers with multiple customer complaints is far smaller. In Chiu’s case, all of the customers complaints involve allegations of unauthorized trading or failing to follow instructions of the client.

FINRA Sanctions Former Ameriprise Broker Radcliffe Daly Over Sloud Recommendations

February 18, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned former Ameriprise Financial Services, Inc. (Ameriprise) broker Radcliffe Daly (Daly) concerning allegations that between May 2013 and November 2013, while Daly was registered with Ameriprise, Daly mismarked more than 250 order tickets for solicited transactions as unsolicited. In addition, FINRA alleged that during the same period Daly engaged in private securities transactions (also known as “selling away”) without providing written notice to Ameriprise. FINRA also alleged that Daly exercised unauthorized discretion in customer accounts.

Daly entered the securities industry in 2003 and left the industry in June 2014. During the majority of this time Daly was associated with Ameriprise until January 2014.

FINRA alleged that Daly recommended a penny stock, Sloud, Inc. (SLOU), to numerous customers during 2013. According to FINRA Daly placed 292 buy transactions for 43 different customers in the Sloud stock between May 3 and November 7, 2013. However, instead of properly marking the transactions as solicited, Daly allegedly falsely marked 253 of these purchases as unsolicited. FINRA also found that Daly continued to solicit purchases of Sloud and to inappropriately mark the trades as unsolicited even after being told by his firm in June 2013 that he could not solicit purchases of the stock because it was a penny stock and not supported by firm research. From the allegations made by FINRA it appears that Daly attempted to circumvent Ameriprise’s instructions by mismarking the tickets as unsolicited.

FINRA Sanctions Felt & Company Broker Timothy O’Brien Over Discretionary Trades

February 17, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Timothy O’Brien (O’Brien) alleging that O’Brien exercised discretion in two customers’ accounts without obtaining prior written authorization from the customers. O’Brien is associated with brokerage firm Felt & Company.

The FINRA rules provide that registered representatives shall not exercise discretionary power in a customer’s account unless the customer has given prior written authorization to a stated broker and the account has been accepted by the member on that basis. FINRA found that O’Brien was the registered representative for two Felt customers. FINRA determined that in handling the customers’ accounts O’Brien periodically discussed trading strategies with these two customers. However, FINRA alleged that these customers did not give O’Brien written authorization to exercise discretion in their accounts nor did Felt approve these accounts as discretionary accounts. From July 2012, through February 2013, FINRA found that O’Brien used discretion to execute approximately 171 transactions in these customers’ accounts.

Often times unauthorized discretionary trading goes hand and hand with churning, trading that broker engages in solely to generate commissions at the client’s expense. In order to establish a churning claim the investor must show that the trading was first excessive and second that the broker had control over the investment strategy. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over and whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably be expected to profit from the activity.

Broker Lorene Fairbanks Alleged to Have Made Unauthorized Trades in Client Accounts

October 14, 2014 | by Staff Attorney

According to broker Lorene Fairbank’s (Fairbank) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently sanctioned concerning allegations that From August 2006, through February 2012, she effected approximately 57-69 discretionary transactions for seven firm customers without written authorization from the customers or approval from the firm. In addition, Fairbanks was alleged to have mismarked approximately 54-70 order tickets as being “unsolicited” orders when the trades were “solicited” causing the firm to maintain inaccurate books and records.

Fairbanks entered the securities industry in 1996. From August 2006, to March 2012, she was registered Merrill Lynch. Pierce, Fenner & Smith Incorporated (Merrill Lynch). In February 2012, Merrill Lynch terminated Fairbanks and disclosed in a filing that she was discharged for taking discretion in client accounts and mismarking client orders. Since June 2012, Fairbanks has been associated with Ameriprise Financial Services, Inc. In addition, at least five customer complaints have been filed against Fairbanks alleging unsuitable investments, unauthorized trading, and excessive trading (churning).

NASD Rule 2510 prohibits brokers from exercising any discretionary power in a customer’s account unless there is written authorization and the account has been accepted by the member. NASD Rule 3110 and FINRA Rule 4511 provide that members must preserve books and records. FINRA alleged that Fairbanks was not approved by her firm to exercise discretion in any customer accounts but nonetheless effected approximately 57-69 discretionary transactions for seven customers. Also, FINRA alleged that Fairbanks mismarked approximately 54-70 order tickets in the same customers’ accounts as “unsolicited” meaning that the customer asked the broker to make the trade, when the trades were solicited, meaning that the broker brought the investment to the client’s attention.

Former First Allied Broker Herbert Kaye Suspended for Unauthorized Trading

October 8, 2014 | by Staff Attorney

On September 15, 2015 FINRA suspended former First Allied broker, Herbert Leonard Kaye, for four months and fined him $25,000 which includes the disgorgement of $11,000 in commissions. According to FINRA, Mr. Kaye entered over 2,000 discretionary trades in the account of a customer between June 2010 and April 2013 without the customer’s prior written authorization, in violation of FINRA Rule 2010 and 2510(b). FINRA Rule 2010 states that “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”

In June 2010, Mr. Kaye’s customer realized a significant loss on the unsolicited sale of equities that she had inherited from her deceased husband. Following that sale the customer requested that Kaye recommend investments and investment strategies that would limit her exposure to large market fluctuations. The customer, who’s information was not disclosed, gave Mr. Kaye verbal authority to use his discretion to enter trades in her account without contacting her.

According to FINRA, Mr. Kaye did not obtain written authority to trade in her account. Moreover, First Allied’s written policies and procedures prevented discretionary trading except in limited circumstances. Nonetheless, between June 2010 and April 2013, Mr. Kaye executed over 2,000 discretionary trades generating over $173,000 in commissions.

FINRA Suspends and Fines Former First Allied Broker Frank N. Dettenrieder

September 28, 2014 | by Staff Attorney

On July 15, 2014, FINRA suspended Frank N. Dettenrieder, a former financial adviser with First Allied, for twelve days and fined him $5,000 for effectuating discretionary transactions in the accounts of six customers without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts by First Allied in violation of FINRA Rule 2510(b). FINRA Rule 2510(b) disallows registered representatives from exercising discretionary authority in customer accounts without prior written authority.

Under FINRA Rules, financial advisors can either have discretionary accounts – accounts in which the broker has discretion to make purchases without prior approval from the investor – and non-discretionary accounts – accounts in which the broker must obtain prior approval before purchasing securities. In any event, to create a discretionary account the broker must obtain the investors written consent.

FINRA also explained that Mr. Dettenrieder’s conduct violated FINRA Rule 2010. FINRA Rule 2010 requires that all registered representatives “observe high standards of commercial honor and just and equitable principles of trade.”

Advisor Raymond Clark Suspended Over Allegations of Securities Related Misconduct

September 17, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Raymond Clark (Clark) and imposed findings: (1) suspending the broker for three months and fined $6,000 for using his personal email account to communicate with a customer; (2) suspended for four months and fined $10,000 for making false statements to his firm; and (3) suspended for two months and fined $4,000 for failing to report a customer complaint to his firm. FINRA imposed the suspensions to run consecutively and suspended Clark for an additional three months in all supervisory capacities and ordered him to requalify by examination as a securities representative and securities principal.

According to Clark’s BrokerCheck, the broker was registered with Paulson Investment Company, Inc. from December 2008 through May 2009. From June 2007 through January 2009, Clark was registered with J.P. Turner & Company, L.L.C. From May 2009 until August 2010, Clark was registered with First Midwest Securities, Inc. Finally, from August 2010, through August 2014, Clark was registered with Dynasty Capital Partners, Inc. (Dynasty Capital). Clark’s background check also reveals two regulatory complaints and at least nine customer complaints. Only a relatively small percentage of brokers have any complaints on their records and fewer still have as many as Clark.

The complaints against Clark include claims of unauthorized trading, inappropriate use of margin, securities fraud, breach of fiduciary duty, unsuitable investments, churning, and misrepresentations.

Former Merrill Lynch Broker George Zaki Sanctioned Over Unauthorized Trading Allegations

September 9, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker George Zaki (Zaki) concerning allegations that between June 2010, and August 2012, Zaki implemented and/or executed approximately 3,600 discretionary trades in the accounts of approximately 80 Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) customers without the customers’ prior written authorization.

Zaki entered the securities industry in October 2007 joining Neuberger Berman LLC. In June 2010, Zaki became registered with Merrill Lynch. Zaki remained registered with Merrill Lynch until he was terminated on October 8, 2012 when Merrill Lynch filed a Form U-5 stating that Zaki was terminated for “conduct involving exercising discretion in non-discretionary client accounts.” In November 2012, Zaki became registered with Barclays Capital Inc. until March 2014. Thereafter, Zaki became registered with Janney Montgomery Scott LLC where he is presently employed.

Under the FINRA rules, unauthorized discretionary trading is not allowed. NASD Rule 2510(b) provides that registered representative may exercise discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm. FINRA has stated that subsequent ratification of the transaction by the customer does not excuse this violation. In addition, FINRA Rule 2010 requires members and associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.

Broker Richard Lewis Formerly of LPL Financial Sanctioned Over Alleged Improper Use of Discretion

September 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Richard Lewis (Lewis) concerning allegations that Lewis exercised discretion in a customer’s account without obtaining prior written authorization from the customer. FINRA found that his conduct violated NASD Conduct Rule 2510(b) and FINRA Rule 2010.

Lewis first became registered with FINRA firm in 1989. Since then, he has been associated with several firms and from December 2010, to March 2013, Lewis was associated with LPL Financial LLC (LPL). Currently, Lewis is associated with J.W. Cole Financial, Inc.

FINRA alleged that from April 2012, to February 2013, while Lewis was associated with LPL, he effected approximately 81 discretionary transactions in the securities account of a customer without obtaining prior written authorization and without LP accepting the account in writing as discretionary.