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FINRA Files OHO Complaint Against Berthel Fisher, Jeffrey Dragon over UIT Sales Practices

FINRA filed a complaint against Berthel, Fisher & Co. Financial Services, Inc., and former broker Jeffrey Paul Dragon over unit investment trust (UIT) sales to elderly and unsophisticated investors that FINRA says generated more than $421,000 in commissions for the firm and its reps while placing the senior investors in jeopardy.

OHO Disciplinary Proceeding #2014039169601

The findings state that from 2013 through 2014, Dragon (CRD #1874038) unsuitably recommended that his customers liquidate UIT positions they had held for only a few months, and had purchased on Dragon's recommendation. Dragon also allegedly recommended that the vulnerable investors then use the proceeds from the UIT sales to, in turn, purchase other UITs.

The Department of Enforcement found Dragon's recommendations excessive and unsuitable, and found that Dragon further structured investments in order to avoid reaching volume-discount "breakpoint" levels of $50,000 and $100,000 (e.g., by grouping and spreading out the sales into smaller purchases over the course of multiple days that were less than the $50,000 threshold), effectively increasing Dragon's commissions at his customers' expense.

As for Berthel Fisher & Co., FINRA wrote that the firm "allowed this activity to occur—and in fact profited from it" because of its inadequate system for supervising UIT trading. Enforcement accused Berthel of having an inadequate supervisory system not reasonably designed to prevent unsuitable UIT transactions, such as short-term and excessive trading.

As evidenced by the aforementioned smaller-amount purchase scheme purportedly effected by Dragon in an attempt to maximize commissions while denying customers the opportunity to receive sales-charge discounts, FINRA also wrote that Berthel's supervisory system was not reasonably designed to ensure that customers receive volume discounts that they were entitled to.

FINRA noted this was not the first time customers failed to receive applicable sales-charge discounts under Berthel's watch. For instance, Berthel failed to detect over 2,700 UIT purchases from 2010 through 2014 that were eligible for—but did not receive—sales-charge discounts, resulting in excessive sales charges of $667,000.

Enforcement also alleged that the firm's ability to adequately supervise mutual-fund trading was "severely limited" and that the inability to detect certain mutual-fund switches prevented Berthel "from assessing the suitability of these transactions," concluding that the firm's written supervisory procedures (WSPs) were inadequate.

Berthel Fisher & Co. dismissed Dragon in 2016 based on the allegation that Dragon did not adhere to the firm's heightened supervision agreement policy.

If you have invested with Berthel, Fisher & Co., former broker Jeffrey Paul Dragon, or with any broker or financial adviser whose unsuitable recommendations to excessively trade UITs or complex products, or whose failure to apply sales-charge discounts due to nefarious financial manipulation (such as spreading out large purchases into multiple smaller ones, so as to circumvent a "breakpoint" threshold for volume/bulk discounts) has proven harmful to your investments or interests through overpayment or accrual of excessive charges, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

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