Holding Them Accountable: FINRA Takes Action Against Brokers For Misconduct, Fines Brokerage Firm for Lack of Oversight
Last week, two securities brokers found themselves out of jobs and exiled from their profession after they engaged in improper and unauthorized trading activities. A third broker has been issued a “disciplinary complaint” after making an unsuitable recommendation to his clients. Additionally, a New Jersey brokerage firm has been ordered to pay a fine in the amount of $325,000 for failure to supervise the activities of its sales people.
The sanctions have been imposed by the Financial Industry Regulatory Authority (FINRA), an organization responsible for the regulation of brokerages and exchange markets. Although FINRA is a private corporation, it is subject to oversight by the federal Securities and Exchange Commission (SEC).
One of the cases involves a New Albany, Ohio broker who worked for Swiss-based UBS, a multi-billion dollar institution implicated in a scheme that defrauded hundreds of investors holding Puerto Rico municipal bonds. Ronald Broadstone had been employed by UBS for the past ten years, and has been working in the industry since 1983. According to FINRA allegations, Broadstone acted improperly by misappropriating the assets of his clients. He also engaged in unauthorized trades and settled a formal complaint from a client without the authorization or knowledge of UBS. When questioned by FINRA on April 18, Broadstone, speaking through his legal counsel, refused to provide answers. This was a violation of Rule 8210, which requires that
“a member, person associated with a member, or any other person subject to FINRA's jurisdiction to provide information orally, in writing, or electronically...and to testify at a location specified by FINRA staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination, or proceeding.”
Broadstone has now been suspended. Peter Mougey, a securities litigation attorney at the Levin Papantonio Law Firm of Pensacola, Florida, says “This financial advisor should not have been able to take advantage of so many investors and they should be made whole by UBS.”
The second case involves a broker at Raymond James Investment Banking. Scott Sibley of Pompano Beach, Florida worked for Raymond James between 2007 and 2015, when he was fired in the wake of client complaints that accused him of “unauthorized trading and improper use of time and price discretion.” After that, he went to work at Moors & Cabot, where he engaged in a number of high-risk transaction without the clients’ knowledge or authorization and falsified records. Sibley was fired this past February, and FINRA has now barred him from working in the industry.
A third case came to light this week when Walter J. Marino of Palm Beach Gardens, Florida, was charged with advising his clients inappropriately while misrepresenting and falsifying records. Marion, who was employed at Legend Equities Corporation at the time, pocketed more than $60,000 in commissions after incurring tax liabilities and excessive fees for two of his clients, then lied to his supervisors. Over the past twenty years, Marino's former clients have received a total of $494,000 in settlements over allegations of brokerage misconduct.
FINRA has also imposed a $325,000 fine on Summit Equities, Inc. of Parsippany, New Jersey, for failure to supervise its advisers' recommendations and not providing training to employees in the area of multi-share class variable annuities, which are highly complex and can carry considerable risk.
These cases represent a disturbing trend in the financial services industry, particularly in the area of annuities. Over the past year, FINRA has imposed fines totaling $176 million against firms involved in annuities – a nearly 530% increase over 2008. In addition, the number of consumer complaints increased by over 30% in 2016, the highest rate in three years.
Mougey points out that “Brokerage firms are responsible for overseeing its financial advisor business affairs both inside and outside the firm. The primary role of this supervision is to protect investors.” Unfortunately, brokerage firms have been falling down on the job in this respect – and if current trends continue, the situation is not going to improve unless FINRA and the SEC step up enforcement.