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Crown Capital Cited for Mutual Fund Supervision Deficiencies

FINRA censured and fined Crown Capital Securities (Orange, CA) $75,000 for failing to supervise mutual fund switches that investigators say were related to a pattern of unsuitable short-term Class A share mutual fund switching in at least five customer accounts and allegedly perpetrated by brokers Eric William Kuchel and Don Wade Traywick aka Donald or Donnie Traywick.

According to AWC #2014038990602, Crown Capital's supervisory system failed to meet industry standards because it relied entirely on the registered representative to alert the firm of a mutual fund switch. As investigators discovered during their review, two firm reps engaged in the aforementioned unsuitable short-term transactions and did not alert the firm of this activity.

Because Crown Capital's system relied on brokers to self-report mutual fund switches, a rogue stockbroker who wanted to avoid detection could hypothetically fail to inform the firm of these transactions, and this alone would prevent the firm under this supervisory system from discovering potential misconduct, short of a customer complaint or investigation.

FINRA wrote that as a result of Crown Capital's failure to detect the registered reps' undisclosed short-term mutual fund switching, customers paid unnecessary fees such as front-end sales loads and charges, while incurring losses totaling nearly $400,000.

FINRA barred Eric Kuchel (CRD #4118500) of Crown Capital's Brea, CA branch for failing to cooperate with an investigation into the mutual fund switches, while issuing a fine and suspension to former San Clemente branch broker Donald Traywick (CRD #2410109), who consented to FINRA's findings that he recommended and effected unsuitable short-term switches of Class A mutual fund shares in customer accounts without a reasonable basis as to the transactions' suitability. Traywick is presently associated with TCFG Wealth Management of Missouri City, Texas.

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