Kevin McCallum, an Alabama-based stockbroker and financial advisor with Glacier Point Advisors, LLC, who was previously registered with LPL Financial, LLC and NBC Securities, Inc., has disclosed a $4.8 million arbitration claim filed by his customers related to their investment in Medley Capital Corporation.
According to the customers’ complaint, McCallum exercised discretionary trading authority in the customers’ account and used over-concentrated the account in a large position in Medley Capital Corporation. Medley Capital holds itself out as a non-diversified closed-end management investment company whose business model was to attempt to generate income and capital appreciation by lending funds to privately-held middle-market companies, primarily through directly originated transactions.
The customers alleged that by October 2018, the Medley Capital position constituted over 85% of the total value of their account even though they knew nothing about the company and had no role in the selection of the stock for their account.
According to their allegations, McCallum’s customers had a moderate risk profile with investment objectives of Income and Growth. Medley Capital’s price volatility and illiquidity risks, combined with the over-concentrated position in the stock, exposed the customers to significant and unsuitable risk, of which the customers were entirely unaware.
The claimants allege that due to the illiquidity of Medley Capital, they were only able to sell off their position in partial, daily, liquidations. By the time the last of their Medley Capital investment was liquidated, it was sold for as little as $0.50 per share. The claimants allege losses of over $4.8 million in their Medley Capital investment.
Substantially identical allegations were also brought against McCallum’s former employer, Cadence Bank, in Mobile County, Alabama Circuit Court.
The $4.8 million arbitration claim is one of three FINRA arbitration complaints pending against Mr. McCallum which relate to Medley Capital. Mr. McCallum has also settled a fourth claim related to overconcentration in Medley Capital.
According to a July 20, 2020 Schedule 13D filed by Medley Capital Corporation with the Securities and Exchange Commission, Mr. McCallum wrote the company to express his interest in being appointed to its board of directors. In his letter seeking that appointment, Mr. McCallum informed Medley that his firm, Glacier Point Advisors, LLC, represents clients who hold a combined 11.06% of the common shares of Medley Capital Corporation.
Based on Mr. McCallum’s disclosure that his firm’s clients hold such a high percentage of the overall common shares of Medley Capital, and based on other customer complaints alleging overconcentration in Medley Capital stock, the Frankowski Firm is offering any McCallum client a no-cost consultation to discuss their potential claims.
A stockbroker making a self-serving recommendation of (or using discretionary trading authority to purchase) a stock that is not suitable for his client would be a violation of FINRA’s rules.
FINRA Rule 2010 requires its members, like Mr. McCallum, to “observe high standards of commercial honor and just and equitable principles of trade.” FINRA Rule 2090 requires FINRA members to know and retain “the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
FINRA Rule 2111, the Suitability Rule, requires its members to have “a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”
Over-concentrating a customer’s account in a single risky stock position is a form of volume unsuitability which also runs afoul of FINRA Rule 2111.
If you or someone you know suffered Medley Capital losses as a customer of Kevin McCallum, Glacier Point Advisors, LLC, LPL Financial, LLC, or NBC Securities, Inc., you may have a right to recover your losses. For more information and a no-cost consultation, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.