FINRA barred former Independent Financial Group and Sandlapper Securities, broker Kyusun Kim for unsuitably recommending that a number of elderly and retiring customers liquidate their 401(k) and pension plans to invest in speculative and illiquid alternative investments, such as non-traded real estate investment trusts (REITs) and structured notes.
Investigators say all of Kim's customers that fell victim to Kim's suitability violations had moderate or conservative risk tolerance levels and investment objectives, and that Kim's customers suffered substantial losses as a result of the unsuitable investment strategy.
Kim's Brokercheck file reports pending and settled customer disputes—with sought and settled damages in the millions of dollars—alleging fraud; breach of fiduciary duty and contract; misrepresentation; material omissions; unsuitability; financial elder abuse; and violation of California securities laws. For example, one such dispute settled for $690,000 alleged unsuitable investments and misrepresentations in connection with Direct Participation Programs (DPP) and REITs, variable annuity products, mutual funds, and structured notes purchased at Kim's behest.
The findings state that Kim (CRD #2864085), while affiliated with Independent Financial Group (IFG) in San Diego, California, made unsuitable recommendations to a number of his older customers that they concentrate their retirement assets and other investments, including significant portions of their liquid net worth, in speculative and illiquid securities, including REITs, structures notes, and other alternative investments.
Kim purportedly engaged in the misconduct from 2008 through 2015 and did so by unsuitably recommending and persuading senior customers to liquidate retirement assets such as 401(k)s and pension plans and invest the proceeds with Kim at IFG in alternative investments, despite the elderly customers' lack of investment experience and unfamiliarity with alternative investments. In addition, Kim also purportedly failed to disclose to his customers the risks and costs associated with the alt investments, such as their speculative and illiquid nature.
The report indicates that Kim's unsuitable recommendations caused these moderate- and conservative-minded investors to accrue an undue concentration of assets and liquid net worth in speculative and illiquid securities, including the aforementioned REITs, notes, and other alt investments.
For instance, investigators told the tale of a 71-year-old customer with a moderate risk tolerance whom Kim recommended liquidate his 401(k) and pension, using the proceeds to invest in non-traded REITs and structured notes. FINRA found that based on Kim's recommendations, the customer's liquid net worth wound up 75% concentrated in these speculative and illiquid securities that were already unsuitable for the client, much less over-concentrated in the risky securities.
Another Kim customer—72 years old—purportedly liquidated her 401(k) and pension on Kim's recommendation to invest in non-traded REITs and structured notes, placing 50% of her liquid net worth in these illiquid securities, which were unsuitable for this client's conservative risk tolerance preference.
Under ordinary circumstances, 75% or even 50% concentration in alternative investments generally exceeds the maximum percentage of assets that may be invested in such a speculative and illiquid product, and, indeed, IFG's procedures limited the amount of a customer's net worth that could be placed in alt investments.
However, investigators found that in order to circumvent these procedures, Kim artificially inflated his customers' net worth by entering inaccurate liquid net worth and customer investment experience information so as to fit underneath the threshold figures and avoid detection, thus causing his firm to maintain false books and records.
On a similar note, a previous customer dispute in Kim's file alleged, amongst other things, forgery.
If you have invested with ex-Independent Financial Group representative Kyusun Kim of IFG's San Diego branch or with any broker or financial adviser who has unsuitably recommended you liquidate your retirement holdings or savings to invest in an inappropriately risky, complex, speculative, or illiquid product, and the resulting overconcentration 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.