Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Paul Waldman (Waldman), currently associated with Celadon Financial Group LLC, has at least one disclosable event. These events include one tax lien, alleging that Waldman recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on October 31, 2024.
Without admitting or denying the findings, the firm and Waldman consented to the sanctions and to the entry of findings that the firm published quarterly Rule 606 reports that provided inaccurate information about its handling of customers’ orders. The findings stated that when the third-party vendor the firm retained to prepare its quarterly Rule 606 reports could not accurately process the firm’s trade data, it provided the vendor with historical trade data for the fourth quarter of the prior year and the first and second quarters of current year. The firm published the Rule 606 report without correcting the errors the vendor experienced processing the firm’s trade data. As a result, this Rule 606 report also provided customers inaccurate information regarding its routing of non-directed orders in NMS securities. The findings also stated that the firm and Waldman failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Rule 606. The firm delegated Waldman with supervisory responsibility as it relates to both the firm’s WSPs and Rule 606 reports. When conducting his supervisory review of Rule 606 reports, Waldman randomly selected five trades for comparing the terms of the trades to the execution venue, payment for order flow and material aspects disclosures in the quarterly report. Waldman’s random review of five trades per quarter was not reasonably designed to supervise the accuracy and completeness of the firm’s disclosures, given that the firm effected approximately 10,000 transactions in NMS stocks each month. Waldman also approved the firm’s quarterly reports for publication even though he knew the reports were prepared using historical trade data. The findings also included that the firm failed to develop and implement a reasonably designed AML program. The firm expanded its business to facilitate the liquidation of low-priced securities and became aware of numerous red flags related to a group of approximately ten customers who wished to deposit and sell low-priced securities and often transacted in the same low-priced securities. More specifically, when the firm onboarded the customers, it became aware that several of the customers were the subject of news reports indicating possible criminal, civil, and regulatory violations. The firm executed over 3,600 transactions in low-priced securities for the customers for a total principal amount of approximately $299 million, constituting over 74 percent of the total dollar amount transacted in low priced securities at the firm and generating approximately $7.9 million in commissions. The firm’s failure to implement an AML program reasonably tailored to its business resulted in the firm failing to identify, investigate, and report suspicious trading by the Customers.
In the financial industry advisors must meet the requirements of the SEC’s Regulation Best Interest (Reg BI) in providing investment advice and services. Reg BI established a ‘best interest’ standard for brokerage firms and registered representatives. 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 different sub-parts of the Reg BI rule that financial professionals must comply with when providing advice. Among those is the duty of care obligation that mandates associated persons to evaluate investment options, review and be knowledgeable the risks and rewards of the investment or service, compare alternative investment products, and ensure that the overall investment strategy aligns with the client’s goals and is in their best interests.The care obligation also requires the broker to address the client’s specific needs through obtaining specific investment profile information on the client. The associated person typically will ask the customer for information such as the investor’s risk tolerance or ability to withstand account value declines or increases; experience with investments available; investment objectives and goals; investment time horizon; liquidity needs; assets such as investment accounts held at other financial institutions; tax information; their age and retirement plans; and other information that a customer may want to provide to the advisor to help them to properly address the services needed. 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.
An advisor must understand the type of account, securities, and their client in order to meet their care obligations. The type of securities account has the potential to greatly affect retail customers’ costs and investment returns. Different types of securities accounts can offer different features, products, or services, and not all types of accounts or services would be in every investor’s best interest.
Waldman entered the securities industry in 1993. Waldman has been registered as a Broker with Celadon Financial Group LLC since 2011.
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.
