Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Christopher Kennedy (Kennedy), previously associated with Western International Securities, Inc., has at least 2 disclosable events. These events include 2 tax liens, alleging that Kennedy recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on January 23, 2025.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Christopher Booth Kennedy (‘Kennedy’ or ‘Respondent’). In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement which the Commission has determined to accept. The commission finds that On January 10, 2024, a final judgment was entered by consent against Kennedy, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 (‘Securities Act’) and Section 10(b) of the Exchange Act and Rules 10b-5 and 15l-1(a)(1) thereunder, as set forth in the judgment entered in the civil action entitled Securities and Exchange Commission v. Christopher Booth Kennedy, Civil Action Number 2:24-CV-10608, in the United States District Court for the Central District of California. The Commission’s complaint alleged that Kennedy made false and misleading statements regarding the value and success of his trading strategy, and sent one customer falsified account statements. In addition, the complaint alleged that between July 2020 and July 2021, Kennedy recommended a short-term, high-volume investment strategy in nineteen retail customer brokerage accounts without a reasonable basis that exceeded $363 million in total transactions, resulting in over $9 million in customers losses. The nineteen retail customer brokerage accounts paid approximately $1.277 million in total commissions, $958,134 of which was paid to Kennedy. As a result of the high volume of recommended transactions and their attendant commissions, it would have been virtually impossible for these retail customers to achieve a positive return in their brokerage accounts.
FINRA BrokerCheck shows a final customer complaint on September 22, 2023.
Kennedy was named a respondent in a FINRA complaint alleging that he churned and excessively traded accounts of customers. The complaint alleges that Kennedy used his control over these accounts to direct an excessive series of transactions in each account that generated commissions for his own benefit at the customers’ expense. Kennedy directed trades representing net trading of more than $350 million in the customer accounts. Each month, Kennedy made trades representing net trading of more than $6.9 million per account or approximately 13 times the average account value. Kennedy’s trading for the customers resulted in annualized cost-to-equity ratios ranging from 27 percent to 39 percent for an average cost-to-equity ratio of more than 31 percent across all their accounts. In addition, Kennedy’s trading resulted in annualized turnover rates ranging from 31 to 58, for an average turnover rate of more than 47 across all their accounts, even excluding options purchases. As the result of Kennedy’s excessive trading, the customers collectively lost over $2.3 million in value from their accounts and paid more than $715,000 in total trading costs and margin interest, including over $595,000 in commissions. By churning the customer accounts, Kennedy willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and violated FINRA Rule 2020, and by excessively trading their accounts, he willfully violated Exchange Act Rule 15l-1 (Regulation Best Interest). The complaint also alleges that Kennedy made fake account statements to hide the results of his trading from two customers, a husband and wife co-trustees of a family trust account. Over six months, Kennedy prepared and sent six fake account statements to the customers from his personal email. Kennedy supplemented these fake account statements by making a series of other false statements to the married couple inflating their account value. For example, Kennedy sent a fake account statement to the married couple purporting to show an ending balance of $5.2 million and a gain in value of over $3 million. In fact, under Kennedy’s control the account had lost nearly all of its value and only approximately $160,000 in value remained in the account. The complaint further alleges that during FINRA’s investigation of his trading, Kennedy repeatedly lied to FINRA in response to its requests for information and on-the-record testimony. In particular, Kennedy falsely denied preparing any fake account statements for the married couple and falsely claimed that his personal email had been hacked and that an imposter had sent all but one of the fake account statements.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the financial advisor must use their knowledge of both their reasonable diligence into investment options as well as their knowledge of the investor’s client specific needs to consider reasonably available investment options. Those investment options must allow the broker to determine that there is a reasonable basis that the recommendation is in the retail investor’s best interest.
Brokerage firms and advisors must also understand the features and limitations of various account types as part of meeting Reg BI’s care obligations. Firms typically offer a variety of account options and services with different trading costs, services, such as account and activity monitoring. An advisor’s recommendation as to what type of securities account to open can alter the customers’ overall costs and investment returns. The advisor must determine that the client can benefit from the type of account being recommended to be opened and in the investor’s best interest taking into account the costs, benefits, and needs of the client.
Kennedy has been in the securities industry for more than 18 years. Kennedy has been registered as a Broker with Western International Securities, Inc. since 2019.
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.
