SEC Finding Spotlight: January 2020
Although many brokers and brokerage firms provide investor clients with reasonable and well-founded advice that adheres to legal requirements, some brokers fall below this standard. When a broker fails to play by the rules, it often leads to devastating financial losses, hardship, and undue stress for the investor client. Because so many investors trust their brokers to make important financial decisions on their behalf, it can be difficult to know whether your broker is acting appropriately or taking advantage of you. If you believe that you were burned by your broker, Los Angeles securities attorney Steve A. Buchwalter is available in Southern California to help you evaluate your potential legal claims against the broker or brokerage firm involved in your case.Holding a Broker Accountable for Unnecessary Trade Activity
Recently, the Financial Industry Regulatory Authority (FINRA) engaged in an enforcement action against Cecil Allen Ross of Raymond James Financial Services. According to FINRA, Ross engaged in what it described as an unsuitable pattern of short-term trading of Unit Investment Trusts (UITs) in his customers’ accounts. This resulted in a violation of NASD Rule 2310 and FINRA Rules 2111 and 2010.
According to NASD Rule 2310, brokers must have reasonable grounds for believing that a recommended trade is suitable for each customer according to the information that the customer provided to the broker about his holdings and financial needs. FINRA Rule 2111 superseded NASD Rule 2310 in 2012 and requires the broker to have a reasonable basis for believing that a recommended trade will meet the investor’s needs. Finally, FINRA Rule 2010 requires brokers to act with a level of fiduciary duty and candor in their dealings with investors, and to use an honest and equitable approach to rendering investment advice.
There are a number of charges that are associated with a UIT purchase, and a knowledgeable securities lawyer can go over these details with you if they are at issue in your case. During the period involved in the FINRA enforcement action against Ross, this involved three charges: an initial sales charge, a deferred sales charge, and the creation and development of a fee. This means that the sale of a UIT before its maturity date and the use of the proceeds to invest in another UIT will cause the customer to suffer higher sales charges than if the UIT was held until it reached its maturity date.
FINRA concluded that Ross advised clients to sell their UITs well before their maturity dates, and roll the money into new UIT investments in connection with 287 customer accounts. This caused his customers to incur unnecessary excess sales, according to FINRA, and violated its rules. He was suspended for four months and required to pay a fine of $5,000 in connection to the enforcement action.Other Sources of Liability
A broker can also face civil liability for failing to maintain accounts appropriately, and a skilled Los Angeles securities lawyer can help you pursue your claims if this has happened in your case. If a broker failed to use the same degree of candor, fairness, and fiduciary responsibility that a prudent broker would have used, then he or she can be held liable for the damages that he or she has caused to a client’s accounts. A brokerage firm that employs the broker can be held vicariously liable for this conduct, as well. Brokerage firms are subject to a number of rules that require them to engage in extensive oversight regarding their employee brokers’ activities, including good recordkeeping and fair dealing. If you are successful in showing that the broker and/or brokerage firm failed to act according to the required duty of care, then you are entitled to receive compensation for the amount of financial losses that you sustained as a result of the negligent or fraudulent conduct. The broker and/or brokerage firm may also face punitive damages if the conduct was reckless or intentional.Consult a Compassionate Securities Attorney in Los Angeles
If you were burned by your broker in the Los Angeles area, you deserve legal representation to help you recoup your financial losses and hold him or her accountable. Securities lawyer Steve A. Buchwalter proudly represents clients throughout Southern California including in Pasadena, Newport Beach, Santa Barbara, and throughout California. Call him at 818-501-8987 or contact him online to set up your free and confidential consultation.