SEC Finding Spotlight: December 2018
Although there are a number of rules that govern how securities brokers must approach their clients and manage investor accounts, there are quite a few incidences where a broker decides to exploit his or her position for financial gain. In many cases, an investor does not learn about the abuse until it is too late. Fortunately, the legal system provides recourse for investors who have been burned by their brokers, including remedies that will help restore your accounts to their original financial status. Understanding how a broker engaged in fraud or abused your trust can be difficult, especially if the security instruments involved are complex. Los Angeles securities lawyer Steve A. Buchwalter has substantial experience in the securities industry, including working as a trading advisor and stockbroker. Contact us today to start learning more about how you can seek justice for your inexcusable financial losses.FINRA Issues Enforcement Action against Broker Engaged in Churning
The Financial Industry Regulation Authority (FINRA) is the agency responsible for overseeing securities traders’ conduct and ensuring that the industry operates in an ethical and fair manner. It engages in enforcement actions against brokers who are running afoul of the many regulations that it has enacted throughout the years.
Recently, FINRA reached an outcome in an enforcement action against Sean J. Waters, a broker located in Hemet, California who was registered with several member firms as a General Securities Representative. He was registered with Financial West Group until April 2017, at which time he registered with another member firm.
According to FINRA, between January 2013 and March 2016, Waters engaged in excessive trading, also known as churning, in two accounts that were owned by a senior customer at Financial West. The client, whose husband had passed away, relied on her financial accounts totaling approximately $275,000 as her sole source of income. Based on its investigation, FINRA concluded that Waters engaged in over 1,500 trades involving the client’s accounts during the three-year period and charged her expenses and fees totaling $115,000.
This conduct, which included so-called in-and-out trades where the broker engages in a pattern of buying and selling the same security multiple times, constituted a direct violation of Exchange Act Rules 10(b) and 10b-5, as well as FINRA Rules 2020, 2111, and 2010. As a result of these violations, Waters was barred from associating with any FINRA member.Securities Laws that Protect Consumers
There are a number of rules and laws that have been implemented to protect investors from fraud by brokers, and a knowledgeable securities attorney in Los Angeles can answer any questions you may have about these standards. For example, section 10b-5 makes it unlawful for brokers to engage in manipulative or deceptive practices in connection with the purchase or sale of a security. Furthermore, Rule 10b-5 also makes it illegal to make any untrue statements or material omissions when engaging in securities trading. This includes misrepresenting facts or misleading a client about the nature of a transaction.
Rule 2020 is comparable to Rule 10b-5 and provides even more protections for investors. It states that brokers are prohibited from entering into transactions or leading investors to purchase or sell securities using any type of fraud, deceit, or contrivance. This also ties into FINRA Rule 2020, which requires brokers to act with the highest standard of commercial honor and to act in accordance with equitable trade principles. A skilled Los Angeles lawyer can help you assess whether one of these rules was broken in your case.
The practice of churning, which involves making unnecessary and repetitive transactions in order to rack up brokerage fees that are paid to the broker or brokerage firm, is considered a manipulative and deceptive act under these rules. In general, churning occurs where a broker has control of an account, the transactions in the account are inconsistent with the client’s financial objectives, and the broker has the intent to defraud the client or to act with a reckless disregard for the client’s best interests.
According to California law, investors can bring a civil action against a broker who fails to act with appropriate care and in accordance with their fiduciary duties in handling the investor’s accounts. The law imposes on brokers a duty to use the utmost level of candor and fair dealing when advising clients, particularly due to the difference in expertise and knowledge between a broker and his or her client. If you can show that the broker failed to use appropriate care and candor when handling your accounts, or engaged in intentional fraud, you are entitled to the difference between the value of your account had the broker acted appropriately and the value of your account after the negligent or fraudulent conduct.Experienced Securities Lawyer in Los Angeles
Whether your broker was negligent or intentionally reckless, you deserve to be restored to the financial position that you were in prior to the misconduct. Our dedicated team of legal professionals focuses on cases involving securities fraud or negligence, which means that we have the experience and knowledge it takes to aggressively assert your rights. We proudly serve clients throughout Hollywood, Beverly Hills, Pasadena, Malibu, and other areas of Southern California, including Hemet and surrounding communities. Call us at 818-501-8987 or contact us online to get started.