SEC Finding Spotlight: March 2020
It’s not uncommon for investors to develop meaningful relationships with their brokers, especially if their broker handles their finances for several years or for multiple generations within the same family. Although this can make for an easy and enjoyable working relationship, it can also lead to situations where lines are blurred and professional boundaries are crossed. One of the best examples is where a client is asked to lend money to a broker or consider giving them a gift. It can be hard to envision taking legal action against someone you consider a friend, but protecting your financial integrity is a critical priority. As an experienced Los Angeles securities attorney, Steve A. Buchwalter is prepared to help you determine whether your broker has wronged you, either through careless negligence or intentional fraud.FINRA Rules Establish Clear Boundaries Between Brokers and Investors
The Financial Industry Regulation Authority (FINRA) creates laws that seek to ensure the utmost integrity and fair dealing in the securities industry. It creates enforceable rules that brokers must abide by when advising and conducting transactions on behalf of clients. Brokers who break these rules may be subject to suspension and other penalties. A dedicated securities lawyer in Los Angeles can review your case to determine if your broker violated any of FINRA’s rules.
Recently, Kerry D. Wills, a broker with First Western Securities in Manhattan Beach, California, was the subject of an enforcement action by FINRA. According to a FINRA Letter of Acceptance, Waiver, and Consent, Wills borrowed $150,000 from a 90-year-old customer who had been a client of his for over 30 years when he assisted her with the probate of her husband’s estate. He had provided financial services to her deceased husband and extended family members as well. This led to a close relationship developing between Wills and the client, including Wills providing personal care and managing her personal affairs during the final years of her life. He maintained her properties, paid her bills, and handled her healthcare matters.
The money that he borrowed from the client was used to cover costs he incurred through litigation. The loan was memorialized with a 10-year promissory note with a 2% fixed interest rate. He did not discuss the loan with his firm or seek an exception to its rules against taking loans from clients. Wills made one annual payment on the loan and the client passed away six months later. She left a trust document instructing that the debt be forgiven. The document also showed that Wills accepted $19,500 in luxury travel gifts from the same client, and failed to disclose these items on the firm’s gifts and gratuities log.FINRA Rule Violations
A Los Angeles securities attorney can evaluate what FINRA rules may be applicable in your case, and whether you may be able to pursue a legal claim for broker misconduct. FINRA Rule 2010 requires brokers to use the utmost level of commercial honor and equity when handling client matters. This rule applies to member firms as well as associated persons such as Wills. Rule 3240 explicitly prohibits brokers from borrowing money from customers unless the firm has written procedures allowing such practices, and the arrangement meets the conditions of Rule 3240. A violation of Rule 3240 also constitutes a violation of Rule 2010.
Wills’ actions violated not only his firm’s procedures and policies regarding customer relations, but also Rules 3240 and 2010. The firm’s written supervisory procedures explicitly banned brokers from borrowing money from a customer, and there were no exceptions to this rule under the laws. If you feel that you or a loved one may have experienced similar treatment at the hands of a broker, you can discuss your situation with experienced legal counsel.Securities Lawyer for Los Angeles Area Residents
Steve A. Buchwalter is dedicated to helping investors who have been burned by their brokers seek legal redress. If you have been a victim of broker misconduct, you may be entitled to recover damages in the amount of the estimated losses that you have incurred. The litigation process will generally involve showing that the broker acted negligently or intentionally in violating FINRA regulations and other standards that apply to the broker-investor relationship. Attorney Buchwalter handles cases on behalf of clients throughout Southern California, including areas such as Pasadena, Beverly Hills, and Malibu. To schedule your free consultation, call him at 818-501-8987 or contact him online.