The Securities & Exchange Commission (SEC) sustained a National Adjudicatory Council (NAC) decision in which broker Kent Michael Houston of Carlsbad, California received a $75,000 fine and three-year suspension from the securities industry for intentionally attempting to conceal outside business activities as a trustee for which he received "substantial compensation."
According to the findings, Houston began serving as a co-trustee for his great aunt's trust account and, pursuant to the terms of the trust, received compensation for his services.
Houston allegedly opened an account for the trust at his employing firm, First Wall Street Corp., serving as account representatives while concurrently the account's trustee. The findings state that in his capacity as trustee, Houston received compensation in excess of $400,000, including a series of checks between 2001 and 2006 that Houston wrote to himself.
Though First Wall Street's compliance department informed its brokers and representatives of the potential conflicts of interests posed by involvement in client's personal matters—such as serving as trustee—Houston failed to disclose this activity on firm compliance forms, in violation of firm and FINRA rules.
After the firm directly implored representatives in August 2005 to contact compliance "immediately in writing if you are currently listed as a trustee," Houston allegedly failed to inform the firm. When the firm issued a follow-up memorandum in September, Houston again purportedly hid his trustee activities, agreeing with the statement, "I have NOT accepted any appointment as trustee, successor trustee, executor, or power of attorney over any client including immediate family during the past year."
When First Wall Street first became aware of Houston's check writing authority in the account, the firm launched an investigation and uncovered Houston's trustee relationship to the account. Further review uncovered "large and peculiar withdrawals" in the account at the hands of Houston, which resulted in further questioning and alleged false statements by Houston.
In May 2006, First Wall Street commenced an investigation into possible fraudulent activity in the account, ultimately resulting in the termination of Houston's employment one week later for failure to cooperate with the firm's investigation. $25,000 of the $75,000 fine imposed by the NAC pertains to Houston's continued failure to comply with FINRA requests for information during the regulator's own investigation into Houston's misconduct.
If you have invested with Kent Michael Houston or with any other broker or financial adviser whose service as trustee, executor or other compensated role associated with a potential conflict of interest has proven harmful to your investments or financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.