Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Richard Brown (Brown), previously associated with Arive Capital Markets, has at least one disclosable event. These events include one tax lien, alleging that Brown recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on December 23, 2024.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Richard Brown (‘Brown’ or ‘Respondent’). In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the ‘Offer’) which the Commission has determined to accept. On the basis of this Order and Respondent’s Offer, the Commission finds that on December 23, 2024, a final judgment was entered by consent against Brown, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as set forth in the judgment entered in the civil action Case No. 16-cv-2193, in the United States District Court for the Eastern District of New York. The Commission’s complaint alleged that Brown participated in a scheme in which he received cash kickbacks in return for recommending and purchasing Forcefield Energy, Inc. (‘Forcefield’) stock in his customers’ accounts without disclosing to his customers that he was being paid these cash kickbacks. On August 2, 2016, Brown pleaded guilty to one count of securities fraud in violation of 15 U.S.C. \\u00a7\\u00a7 78j(b) and 78ff, before the United States District Court for the Eastern District of New York, in United States v. Mitchell, et al., 16 Cr. 234 (BMC). On January 27, 2021, a judgment in the criminal case was entered against Brown. He was sentenced to three years’ probation, and ordered to pay a $100 assessment and make restitution in the amount of $1,735,000. The count of the criminal indictment to which Brown pleaded guilty alleged, inter alia, that Brown engaged in a scheme to defraud investors and potential investors by receiving cash kickbacks to recommend and induce customers to purchase stock in issuer Forcefield, without disclosing those kickbacks to his customers.
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. Every recommendation’s cost and investor details are essential parts 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. Accordingly, a brokerage firm may not rely blindly upon the issuer for information concerning a company in lieu of conducting its own reasonable investigation.
Another protective measure for investors is the requirement for brokers to disclose. 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 offer evidence showing that brokers with a past history of regulatory and customer complaint issues are more likely to have such issues in the future. 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.
Brown has been in the securities industry for more than 16 years. Brown has been registered as a Broker with Arive Capital Markets since 2015.
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.
