Unauthorized Trading

Matthew Davis Barred Over Allegations of Conversion of Funds and Unauthorized Trading

August 25, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations that in connection with a FINRA investigation into allegations of misconduct in several customer accounts, FINRA staff scheduled Davis’ on-the-record (OTR) testimony and Davis failed to appear for the scheduled testimony and informed the agency that he would not appear at another time.

Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. He is not currently associated with a FINRA member.

FlNRA alleged that its staff requested that Davis appear and provide testimony on March 24, 2014, regarding allegations that Davis engaged in misconduct in several customer accounts. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations. Through Davis’ counsel, FINRA was informed that he would not appear for testimony.

James Applewhite Fined Over Allegations of Unauthorized Discretionary Trading

July 31, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned financial advisor James Applewhite (Applewhite) concerning allegations that from about January 2010, through October 2012, Applewhite exercised discretion by effecting approximately 171 transactions in eight customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts as required by NASD Rule 2510(b). FINRA found that the discretion was generally exercised pursuant to a strategy previously agreed upon with the customers. Nonetheless, FINRA alleged the firm did not permit discretionary trading, except for managed accounts, with pre-approved written discretion. As a result FINRA found that Applewhite violated NASD Rule 2510(b) and FINRA Rule 2010.

Applewhite entered the securities industry in November 1983. During all periods mentioned in the FINRA finding he was associated with Wells Fargo Advisors, LLC. Applewhite’s employment with Wells Fargo ended on October 22, 2012. Thereafter, Applewhite became registered with BB&T Securities, L.L.C f/k/a Scott & Stringfellow, LLC.

The allegations made against Applewhite constitute unauthorized trading. Unauthorized trading occurs when a broker sells, buys, or exchanges, securities without the prior consent or authority from the investor. Unless an investor gives discretion to make trades, the broker must first discuss all trades with the investor before executing them. Even if the a customer verbally grants a broker discretion such an agreement is not valid under industry rules The SEC has found that unauthorized trading also constitutes securities fraud due to its fraudulent nature. No omission of information could be more material than the failure to inform the investor of his or her own purchases and sales.

Former MML Investors and AXA Advisors Broker Monte Miron Barred From Brokerage Industry

May 28, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned MML Investors Services, LLC (MML Investors a/k/a MassMutual Life Insurance Company) broker Monte Miron (Miron) concerning allegations that Miron made unauthorized trades in client accounts and that the broker failed to disclose certain tax liens on his Form U4 in a timely manner.

Miron first became registered with member firm Dean Witter Reynolds Inc. in September 1982. Miron has been registered with 11 firms between October 1998 and August 2012. From 2005 to January 2008, Miron was associated with MetLife Securities Inc. From December 2007 through September 2012, Miron was a representative with AXA Advisors, LLC.

According to Miron’s brokerage disclosures the broker has had three customer complaints filed against him. The complaints involve allegations of account manipulation, excessive trading, and a misrepresentation concerning a variable annuity.

William Coolidge of Stifel Nicolaus Barred by FINRA Over Unauthorized Trading Activity

April 30, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred financial advisor William B. Coolidge (Coolidge) of Stifel, Nicolaus & Company, Incorporated (Stifel Nicolaus) concerning allegations that Coolidge effected trades in the accounts of three customers without obtaining prior written authorization from the customers and without the accounts being discretionary accounts. In addition, FINRA alleged that Coolidge implemented a trading strategy and made unsuitable recommendations to five customers to switch from mutual funds and Unit Investment Trusts (UIT) to other mutual funds or UITs after holding the investments for a short time period.

Discretionary trading without written authorization is a form of unauthorized trading. Unless an investor has given the broker discretion to make trades in the account, a broker is obligated to first discuss all trades with the investor before executing them. FINRA Rules prohibit a broker from making discretionary trades in a customer’s non-discretionary account. The SEC has found that unauthorized trading is a type of securities fraud due to its fraudulent nature.

FINRA alleged that from April 2008, through April 2012, Coolidge effected approximately 233 trades in the accounts of three customers without obtaining prior written authorization from the customers. One of the customers was 86 years old. FINRA alleged that the customer’s investment objectives were growth and income, her estimated net worth was approximately $240,000, and her annual income was under $25,000. FINRA found that from April 2008 through June 2012, Coolidge implemented a trading strategy in the customer’s IRA account on forty-six occasions and in her individual account on fifty-two occasions where he switched from mutual funds and UITs to other mutual funds or UITs after holding the investments for a short time period. FINRA determined that Coolidge’s recommendations were not suitable and that the customer incurred a total loss of $43,692 and paid $52,316 in commissions.

Paul Thomas of Lincoln Financial Suspended By FINRA Over Penny Stock Trades

January 10, 2014 | by Staff Attorney

Broker Paul A. Thomas (Thomas) formerly with Lincoln Financial Advisors Corp. (Lincoln Financial) was suspended by The Financial Industry Regulatory Authority (FINRA) over allegations that Thomas engaged in unauthorized and/or improper discretionary penny stock trading, engaged in unsuitable penny stock trading, and mismarked the trade tickets for penny stock transactions as unsolicited, when they were solicited trades.

Thomas has been in the securities industry since 2000 and was employed by Lincoln Financial as a registered representative through his termination on October 14, 2011. Thomas has approximately 15 customer disputes filed against him. The vast majority of these disputes involve allegations concerning improper penny stock trading.

A “penny stock” is a security issued by a small or micro-cap company having less than $100 million in market capitalization. Penny stocks typically trade at less than $5 per share and are generally quoted on over-the-counter exchanges such as on the OTC Bulletin Board. The risks of penny stocks include the fact that they may trade infrequently. Thus, it is often difficult to liquidate a penny stock holding once acquired and at the time the investor wants to. Second, it is often difficult to find accurate quotes for penny stocks. Consequently, penny stocks often fluctuate wildly day-to-day and investors may lose their whole investment.

SEC Finds That Former JP Turner Broker Dimitrios Koutsoubos Engaged In Churning

December 2, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Dimitrios Koutsoubos (Koutsoubos) churned the brokerage account of Teddy Bryant (Bryant). The SEC’s decision ordered Koutsoubos to: (1) cease and desist from committing fraud; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $30,000 plus prejudgment interest, and (4) pay civil penalties of $130,000.

The SEC allegations against Koutsoubos also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Ralph Calabro (Calabro), and James Konner (Konner). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC claimed that Calabro, Konner, and Koutsoubos generated fees and commissions totaling around $845,000, for their benefit while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had approximately 200 small or one-person branch offices. Koutsoubos joined JP Turner in 2000 and left in 2009. Thereafter, Koutsoubos became employed with Caldwell International Securities Corporation.

What is Churning?

September 1, 2013 | by Staff Attorney

“Churning” is essentially investment trading activity that serves little useful purpose or is inconsistent with the investor’s objectives and is conducted solely to generate commissions for the broker. Churning is also a type of securities fraud.

Recently, the National Adjudicatory Council (“NAC”) provided a detailed description of the elements and factors evaluated in determining a claim of churning. The NAC affirmed a Financial Industry Regulatory Authority (FINRA) finding that Alan Jay Davidofsky (Davidofsky) engaged in unauthorized trading, excessive trading, and churning in a customer’s account. The panel barred Davidofsky from the financial industry for the unauthorized trading, imposed a separate bar for the excessive trading and churning, and ordered Davidofsky to pay a fine of $11,741 as disgorgement of the financial benefit earned through the misconduct.

As the NAC ruling explained, NASD Rule 2110 requires brokers to “observe high standards of commercial honor and just and equitable principles of trade.” NASD Rule 2310(a) provides that in recommending securities, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer based upon the customer’s financial situation and needs. Included in this rule is the obligation of “quantitative suitability,” which focuses on whether the number of transactions within a given timeframe is suitable in light of the customer’s financial circumstances and investment objectives.