Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker David Elgart (Elgart), previously associated with Sequoia Investments, Inc., has at least one disclosable event. These events include one tax lien, alleging that Elgart recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on January 04, 2024.
Without admitting or denying the findings, Elgart consented to the sanctions and to the entry of findings that he engaged in activities requiring registration while unregistered and statutorily disqualified and engaged in activities requiring registration. The findings stated that in 2016 the Office of Hearing Officers (OHO) issued a decision finding that Elgart willfully failed to timely update his Form U4 to disclose five tax liens. Elgart thereafter timely appealed this decision to the National Adjudicatory Counsel (NAC), which stayed the imposition of his statutory disqualification. Elgart became statutorily disqualified in 2017, after the NAC issued its decision affirming OHO’s findings. In November 2018, Elgart’s member firm filed a Form U5, terminating his registration. In September 2019, the firm filed a Membership Continuance Application (MC-400 Application) seeking to permit Elgart to reassociate with the firm. Elgart knew that he was not permitted to associate with the firm or effect any transaction in-or induce or attempt to induce the purchase or sale of-any municipal security while the MC-400 Application was pending. Nonetheless, while the MC-400 Application was pending, Elgart used the login credentials and email addresses of other registered representatives to conduct municipal securities business. Elgart’s activities included discussing and recommending transactions to customers, communicating with firm vendors about trade corrections, and logging on to the firm’s systems to effect trades on behalf of customers. FINRA later approved the MC-400 Application.
Under the securities laws brokers are obligated to act in their clients’ best interests and provide only suitable recommendations for investments to the client. In addition, the SEC has promulgated ‘Regulation Best Interest (Reg BI)‘ which according to the SEC enhanced the broker-dealer standard of conduct beyond existing suitability obligations and requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. Regulation Best Interest and the fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest.
Brokers have an obligation to first obtain and evaluate sufficient information about a retail investor to form a reasonable basis to believe the account recommendations are in the retail investor’s best interest. Recommendations cannot be based on materially inaccurate or incomplete information. Data on the investor and the expense of the advice are consistently part of material information. Types of costs that must be considered including account fees, commissions and transaction costs, tax considerations, as well as indirect costs.
In addition to obligation to understand the customer the broker must also investigate the product being sold. FINRA firms have an obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. A brokerage firm has a special relationship with a customer from the fact that in recommending the security, the broker represents to the customer that a reasonable investigation has been made. So, rather than depending solely on the issuer for company information, a brokerage firm should conduct its own reasonable investigation.
Additional investor safeguards include broker disclosure requirements. FINRA requires the broker to disclosure events such as customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters on their public BrokerCheck reports. FINRA has recognized that recent studies indicate future regulatory and customer complaint issues can be predicted for brokers who have experienced them before. FINRA’s Office of the Chief Economist (OCE) published a study showing the predictability of disciplinary and disclosure events based on past similar events. The OCE study showed that past disclosure events, including regulatory actions, customer arbitrations and litigations of brokers, have significant power to predict future investor harm. The data shows that where a member firm on-boards brokers with a significant history of misconduct there is a high likelihood that the broker will continue to engage in similar behavior.
Elgart has been in the securities industry for more than 45 years. Elgart has been registered as a Broker with Sequoia Investments, Inc. since 2021.
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.
