Securities Lawyers Blog
Maurice Joseph Chelliah (Chelliah) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that Chelliah converted $90,000 from two World Group Securities, Inc. (WGS) clients and made unsuitable recommendations to five WGS customers. FINRA alleged that Chelliah recommended that these customers refinance their primary residences and use the proceeds to purchase securities and insurance policies that they did not need and that were beyond the customers’ ability to afford. FINRA found that as a result of Chelliah’s recommendations some of the customers lost their securities, their life insurance policies, and their residences when they were unable to keep their mortgages current.
FINRA alleged that Chelliah violated NASD Rule 2110 and FINRA Rule 2010 by converting customer funds. These rules provide that a member, “in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.” FINRA found that two of Chelliah’s customers were 80 and 75 years-old respectively and were unsophisticated investors. Chelliah recommended that the customers liquidate their mutual fund shares. Following the liquidation, $90,000 in proceeds was transferred to Chelliah’s three outside businesses. The customers had provided these funds to Chelliah in order for him to pay monthly bills and expenses on their behalf but instead Chelliah used these funds for his own personal benefit.
FINRA also alleged that Chelliah made unsuitable transactions in at least five customer accounts. NASD Rule 2310 provides that “in recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs…”
In one case, two of Chelliah’s clients had an outstanding mortgage balance of approximately $30,000 on their $500,000 home. The clients were struggling to pay monthly bills and they advised Chelliah that they were interested in a reverse mortgage in order to obtain monthly income for home repairs. According to FINRA, in October 2006, Chelliah presented the clients with a mortgage loan application for a $450,000 40-year adjustable rate mortgage. After refinancing expenses, and paying off a pre-existing mortgage, the customers cleared $412,575 and the initial monthly mortgage payment was $1,247 which increased to approximately $1,600 within one year of the initial teaser rate period.
At the same time FINRA found that Chelliah also recommended that the clients use the mortgage proceeds to purchase two Equity Index Universal Life insurance policies (EIULs) and invest $345,000 in a mutual fund. The clients were elderly and unsophisticated investors who neither requested nor required life insurance. The clients relied upon Chelliah’s representations that they could afford these products, even though their combined annual income was only $40,000. The monthly EIUL insurance premiums were approximately $3,600 for the couple and were required to be paid until age 100. Chelliah received combined commissions of approximately $45,000 on the two EIULs.
By 2009, the clients were unable to keep their mortgage current, pay their EIUL premiums, or meet their basic living expenses. In July 2011, the mortgagee on the client’s residence initiated foreclosure proceedings against them. On October 16, 2012, WK and BK were forced to short-sell their home to the mortgagee. FINRA found that as a result of Chelliah’s unsuitable recommendations the client’s losses exceeded $330,000.
Chelliah first entered the securities industry in April 2001 and was associated with WMA Securities, Inc. (WMA). In April 2002, Chelliah became a registered representative and supervisor of WGS in the firm’s Orange County, California branch office until his voluntary resignation on January 15, 2009. Thereafter, Chelliah was next employed as a registered representative with First Midwest Securities, Inc. (FMS) from January 27, 2009, until December 15, 2009. Subsequently, Chelliah was employed as a registered representative Evolve Securities, Inc. from March 29, 2010 until his voluntary termination from employment on July 7, 2010. Chelliah’s BrokerCheck discloses that he works for Draycott Company as a marketing consultant and is the president of Advisors Choice Network.
The attorneys at Gana Weinstein LLP are experienced in investigating claims unsuitable investments and investment strategies. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.