FINRA fined broker Richard Grant Cody $27,500 and suspended him through January 6, 2014 after Cody was found to have engaged in unsuitable and excessive trading in customer accounts. The sanctions were rendered in light of a United States First Circuit Court of Appeals' affirmation of an SEC decision.
The complaint stems from multiple investment accounts Cody oversaw while associated with Merrill Lynch, Pierce, Fenner & Smith, Salomon Smith Barney Inc./Citigroup Global Markets, Inc., Leerink Swann & Co. and GunnAllen Financial, Inc.
FINRA specifically alleged excessive trading in multiple customers' IRAs opened at Leerink.
For instance, Cody recommended and effected unsuitable trades in one account, including 140 buy or sell transactions in approximately one year's time, including 84 purchases totaling over $1.4 million.
Most transactions were of the "bond swapping" variety in which Cody purchased bonds, held them for a short amount of time, sold them and used the proceeds to purchase other bonds, mutual funds or other preferred stock.
FINRA found that gross commissions on the transactions totaled over $36,000 while the commission-to-equity ratio was 8.7%, meaning that in order to break even, the account would have to appreciate by 8.7%.
In the end, FINRA determined the trading activity was excessive, as evidenced by the categorization of the affected customers as "unsophisticated investors…at retirement…and the IRAs were the customers' largest accounts." Risk tolerance was described as "low" to "moderate."
Furthermore, FINRA discovered that Cody sent these investors misleading and unapproved account holding summaries by including an allegedly misleading "total portfolio" value, which was sent to customers for a 10-month period before it was corrected.
FINRA further alleged that Cody sent misleading cash position "total" values and fixed-income holding quantities or bond names which were not corrected like the portfolio figures.
FINRA charged Cody with failure to obtain supervisory approval prior to sending customers these reports, pursuant to Leerink's written supervisory procedures.
In 2011, the SEC issued an opinion reviewing FINRA's findings of unsuitable trading, misleading documents sent to customers and Cody's alleged failure to update his Form U4 regarding settlements he purportedly had reached with customers.
After review, FINRA's disciplinary actions were sustained, with the SEC describing FINRA's one-year suspension and fine as "relatively lenient…given the seriousness of each of Cody's suitability violations."
Finally, after Cody petitioned to the US Court of Appeals, the First Circuit issued a 2012 judgment affirming the SEC's validation of FINRA's punishment.
Accordingly, Cody was sanctioned in January of 2013.
If you have invested with Richard Grant Cody or any financial professional who has engaged in excessive trading, provided misleading account statements or engaged in other misconduct that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.