Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) and barring former Stifel, Nicolaus & Company, Inc. (Stifel Nicolaus) broker Robert Head (Head) concerning allegations that between August 2013, and October 2013, Head exercised discretion, aka unauthorized trading, in the account of a customer without obtaining the customer’s prior written consent in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010. In addition, FINRA alleged that Head recommended transactions to the same customer between January 2010, and October 2013, that were qualitatively and quantitatively unsuitable for the customer.
From August 2008, until January 2014, Head was registered with Stifel Nicolaus. Since that time, Head has not been registered with any brokerage firm. In December 2013, Head was discharged from Stifel Nicolaus for alleged violation of the firm’s policy regarding exercising discretion in a client’s account without written authorization.
According to FINRA, Head managed a Stifel Nicolaus trust account for a customer from August 2008, until October 2013. The customer was retired with an original account application listing investment objectives of “Growth and Income” and “Speculation / Active Trading / Complex Strategies.” FINRA found that in November 2009, the account’s investment objective was changed to identify only ”Speculation / Active Trading / Complex Strategies.” FINRA found that the customer never gave Head written authorization to exercise his own discretion for her account.
Nonetheless, FINRA found that Head routinely placed trades in the customer’s account without first consulting with her about the details of individual trades. FINRA found that Head actively traded the customer’s account and often invested in risky and speculative products. FINRA found that in 2009 through the early part of 2010, the account activity was particularly high. Stifel Nicolaus sent the customer a letter in March 2010, stating that 385 trades had occurred in her account in the previous 12 months and that the account currently had 25 open positions in uncovered short call contracts. According to FINRA, the customer signed and returned the letter indicating that she understood and accepted the risks of the investments strategy being implemented.
FINRA found that during 2010, Head placed 155 transactions in the customer’s account which at that time had a value of approximately $250,000. Head’s activity allegedly generated more than $15,000 in commissions and led to losses of nearly $20,000. In June 2011, the customer was diagnosed with dementia but Head was not notified. Head allegedly accelerated his excessive trading in the customer’s account in 2011 engaging in 310 transactions. Those transactions included short option positions and other risky investments generating more than $41,000 in commissions and resulting in losses of approximately $13,500.
Again, FINRA found that Stifel Nicolaus sent a letter to the customer in June 2012, stating that the previous 12 months’ activity included: 275 trades; $29,979 in commissions; 195 short option positions open; and unrealized losses of approximately $70,000. Stifel Nicolaus asked the customer to sign and return the letter to indicate that she ratified the investment strategy and understood the risks associated with it. The customer signed the letter.
Thereafter, FINRA found that Head placed a total of 140 transactions in the customer’s account during 2012, and another 123 during the first 10 months of 2013. In October 2013, the customer’s niece, acting as the customer’s power of attorney, filed a complaint with Stifel Nicolaus and only at this time did the trading activity stop.
FINRA found that both the frequency of the trading that Head did in the customer’s account and the types of investments he recommended from January 2010, until October 2013, were unsuitable given the customer’s financial needs and medical condition and that the broker exercised discretion without written authorization.
Investors who have suffered losses through excessive trading and churning may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives trading in client accounts. Our consultations are free of charge and the firm is only compensated if you recover.