Legal Matters

From January 2013 through December 2017, SagePoint Financial Inc. failed to create or maintain a supervisory system or enforce WSPs to supervise the suitability recommendations to customers regarding early rollovers of Unit Investment Trusts (UITs), according to findings by the Financial Industry Regulatory Authority ("FINRA"). Generally, a Unit Investment Trust (UIT) is a non-actively managed and fixed portfolio of securities offered in shares to investors in a one-time public offering that terminates on a maturity date. The securities are then sold, and the proceeds go to the investors. Despite their benefits to investors, UITs impose several sales charges, as well as other characteristics that might be unsuitable to some investors, such as their varying costs, structures, and long-term nature. The FINRA findings stated that: SagePoint’s WSPs did not discuss early rollovers or series-to-series early rollovers provide guidance to its supervisors on how to monitor for potentially unsuitable patterns of early rollovers. SagePoint did not use automated reports or other tools [...]

Newport Coast Securities, Inc. was recently expelled from FINRA membership fined $403,000 and ordered to pay $853,617.04 plus interest to customers in restitution for excessively trading in and churning customer accounts through five representatives and two registered principals. The FINRA findings stated that: Newport’s customers impacted by their misconduct were predominantly older, nearing retirement, had little to no investment experience, and were primarily retail customers who were interested in investments with minimal risk and expressed no support for high trading levels. With this knowledge, Newport’s representatives “exercised de facto control over the customer accounts.” Newport Coast Securities violated both the Securities Exchange Act of 1934 and FINRA Rule 2020 by “churning” customer accounts, or encouraging frequent turnover of the investments to generate commissions while ignoring the clients’ interests. Newport’s representatives, “made qualitatively unsuitable recommendations regarding certain exchange-traded products.” One of the recommendations to customers was to purchase leveraged or inverse exchange-traded funds, or “ETFs,” with no reasonable basis to do [...]

Citadel Securities established an Over-the-Counter equity trading desk in November 2011 to receive orders from the Firm’s clients on behalf of their customers. The firm’s stated objective was to comply with the Trading Ahead and Limit Order Display Rules by providing “automated order protection, quote display, and execution” for the customer orders. The OTC Desk, however, implemented controls, settings and processes that removed hundreds of thousands of larger customer orders. Those protocols sought to direct OTC customer orders for manual handling and review. The orders affected by this became inactive until the completion of a manual trader review. The FINRA findings stated that: The OTC Desk traded ahead of the inactive OTC customer orders and failed to display them from September 2012 to September 2014, violating FINRA Rule 6460 and FINRA Rule 5320 The OTC Desk through its protocols failed to display certain customer limit orders, violating FINRA Rule 6460 Citadel Securities failed to establish a supervisory system, including written [...]

On September 22, 2020, an arbitration panel for the Financial Industry Regulatory Authority (“FINRA”) made findings against Jason K. Williams (CRD#: 4676003) and entered an award against him exceeding $45,000. The award followed a customer’s complaint of unsuitable investments and negligent account management, violations of the Indiana Securities Act, breach of contract, breach of fiduciary duty, violations of the FINRA Conduct Rules and NYSE Rules, respondeat superior, and negligence and negligent supervision. Specifically, the customer’s complaint alleged that Williams, in contravention of the customer’s investment objective, risk tolerance, time horizon, overall age and retirement status, made numerous inappropriate investments, traded in and out of several stocks after short periods of time and over-concentrated the customer in several stocks, some of which Williams held himself and blogged about in comments he made on an internet discussion board. The arbitration panel found Williams liable for $45,000 in compensatory damages, $500 in costs, and $23,000 in attorney’s fees. According to BrokerCheck, Williams has worked for [...]