Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Laura Barnes (Barnes), previously associated with Moloney Securities Co., Inc., has at least one disclosable event. These events include one tax lien, alleging that Barnes recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on September 27, 2024.
The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are against Moloney Securities Co., Inc. (Moloney), Donald R. Hancock, David F. La Grange, and Laura B. Barnes (collectively, the Respondents). In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement which the Commission has determined to accept. The commission finds that These proceedings arise out of Respondents’ failures to comply with Regulation Best Interest (Regulation BI) in connection with recommendations of corporate bonds called L Bonds offered by GWG Holdings, Inc. (GWG) to retail customers between June 30, 2020, the compliance date for Regulation BI, and approximately January 15, 2022 (the Relevant Period). According to GWG’s disclosures during the Relevant Period: (a) L Bond investments involved a high degree of risk, including the risk of losing an investor’s entire investment; (b) L Bond investments May be considered speculative; (c) L Bond investments were only suitable for investors with substantial financial resources and no need for liquidity in the investment; and (d) GWG would use a portion of the L Bond proceeds to repay existing L Bond holders. In addition, in November 2021, among other things, GWG disclosed that several enumerated factors raised substantial doubt regarding its ability to continue as a going concern. Despite these disclosures, in recommending the purchase of L Bonds to certain retail customers, Moloney failed to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the recommendations. Moloney also recommended the purchase of L Bonds to certain retail customers for whom it did not have a reasonable basis to believe that the recommendations were in the customers’ best interest based on the customers’ investment profiles and the potential risks, rewards, and costs associated with the L Bonds. Moloney also failed to establish written policies and procedures reasonably designed to identify and disclose, mitigate, or eliminate conflicts of interest associated with recommendations and enforce those policies and procedures that it did have and to disclose material conflicts of interest associated with its recommendations of L Bonds created by its Chief Executive Officer’s and other employees’ personal ownership of GWG securities. Moloney further failed to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Regulation BI. As a result, Moloney failed to comply with Regulation BI’s Care Obligation, Conflict of Interest Obligation, Disclosure Obligation, and Compliance Obligation. During the Relevant Period, Hancock, Moloney’s CEO, was responsible for the firm’s day-to-day operations and its sales of L Bonds to retail customers and caused Moloney’s failures to comply with the Care Obligation, Conflict of Interest Obligation, and Disclosure Obligation, in violation of the General Obligation of Regulation BI. In addition, Hancock, La Grange, and Barnes failed to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the recommendation of L Bonds to certain retail customers. La Grange and Barnes further recommended the purchase of L Bonds to certain retail customers for whom they did not have a reasonable basis to believe the recommendations were in the customers’ best interest based on the customers’ investment profiles and the potential risks, rewards, and costs associated with the L Bonds. As a result, Hancock, La Grange, and Barnes failed to comply with the Care Obligation and willfully violated the General Obligation of Regulation BI and Moloney willfully violated the General Obligation of Regulation BI found in Exchange Act Rule 15l-1(a)(1).
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 standard applies when brokers make recommendations to retail customer for any securities transaction or investment strategy involving securities, including recommendations of types of accounts. 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. Using the foregoing information, the associated person then must consider reasonably available investment option to accomplish the investor’s goals as well as alternative investment options that may be cheaper or other important qualities. Finally, the advisor must conclude that there is a reasonable basis to believe that the recommendation being provided is in the investor’s best interest.
In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Barnes has been in the securities industry for more than 19 years. Barnes has been registered as a Broker with Moloney Securities Co., Inc. since 2012.
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.
