FINRA fined El Segundo, CA-headquartered Cetera Advisor Networks $1.4 million for a handful of violations and failures regarding broker Mark Charles Koehler's unsuitable and excessive trading of Class A mutual funds in 14 customer accounts, including seniors and customers whose risk tolerances and investment objectives should have otherwise prohibited such problematic trading.
In other words, not only was the broker's misconduct harmful to Cetera customers, the firm's own response purportedly exacerbated the situation and allowed the losses to grow even further. For instance, FINRA found that the firm gave Koehler sales awards, all while failing to respond to red flags and supervisor complaints, which identified a pattern of unsuitable trading that caused nearly $700,000 in customer losses.
According to the findings, broker "MK"—identified via a BrokerCheck report as Mark Charles Koehler, CRD #2873947—excessively traded multiple customer accounts by engaging in hundreds of short-term purchases and sales of Class A mutual funds, taking additional steps to mask the short-term mutual fund switches through additional equities transactions.
In addition to violating the customers' investment objectives, FINRA found that the short-term Class A mutual fund trading was unsuitable because the Class A funds were designed to be held for long periods, and that Koehler's customers incurred front-end load fees and other charges on each new Class A mutual fund purchase, all while Koehler purportedly failed to notify his customers of these fees (and, accordingly, without seeking consent or authorization).
After Cetera finally discharged Koehler in 2015 for unsuitable short term trading in mutual funds and other firm policy violations (Koehler's written response to his termination was to state that Cetera had previously given him a "Top Retail Rep of the Year" award), Koehler joined Kovack Securities, where he remained until FINRA barred him from the industry in 2017 in an investigation that commenced after investigators received a tip that Koehler had engaged in unsuitable trades in the account of an elderly client.
That's where Cetera's alleged willful mishandling of the situation, according to FINRA, made things worse.
The AWC states that Cetera failed to reasonably respond to three separate audit reports that documented Koehler's unsuitable trading, which investigators say very clearly identified Koehler's "unexplained and unjustified" short-term Class A mutual fund switching.
In fact, even after Koehler's designated supervisors flag his trading as problematic, Cetera nonetheless gave Koehler sales awards, as his excessive trading and switching did generate revenue for himself and for the firm, even though it caused nearly $700,000 in customer losses.
In the end, FINRA charged Cetera with failing to address "hundreds" of flagged trades in regard to Koehler—from human supervisors and electronic review systems alike—and failed to establish a reasonable supervisory system for mutual fund switching and stock trading.
In July 2018, FINRA fined Cetera Financial Specialists $200,000 for failing to supervise broker Alex P Anderson for misusing an elderly customer's funds, while Cetera subsidiary Investors Capital Corp paid $1.1 million in 2016 over unsuitable short-term unit investment trust and steepener note transactions. Similarly in 2016, Cetera and several broker-dealer subsidiaries were part of a $6.2 million multi-firm fine for failing to supervise sales of variable annuities.
If you have invested with Cetera Advisor Networks, ex-broker Mark Charles Koehler, or with any representative or financial adviser who has unsuitably recommended or engaged in short-term Class A mutual fund transactions or other excessive trading or churning activity in your accounts that has proven harmful to your investments or interests through the incurrence of excessive fees, commissions, costs, or losses, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.