In the latest of a troubling trend, FINRA filed a complaint against "Toby" Mercer Hicks III accusing the former Southeast Investments broker of unsuitably recommending that five customers—all seniors, three of whom were widows—purchase speculative non-traded real estate investment trusts (REITs) and non-traded business development companies (BDCs).
FINRA's AWC #2017052867301 also accused Hicks (CRD #245170) of failing to conduct due diligence on the REIT & BDC offerings and of failing to understand the risks and features associated with the REITs/BDCs before recommending them to his customers, for whom they were unsuitable due to their high degrees of risk, speculative nature, and prospectus-stated unsuitability "for persons who require immediate liquidity, guaranteed income."
In what has unfortunately become an industry-wide pattern of stockbrokers unsuitably recommending complex products such as REITs and BDCs to retirement-age clients, FINRA investigators completed the due diligence that Hicks stands accused of failing to perform, and found embedded deep within the complex products' prospectus documents: "...Only appropriate for those investors who could afford a complete loss of their investments."
FINRA also found that none of Hicks' five senior customers aged 73 to 87-years-old sought speculative or high-risk investments, and that their account documents indicated a desire to preserve capital, which is a feature neither the REITs nor BDCs advertised.
In January 2019, FINRA filed a complaint alleging that Southern California broker William Mark Heiden (Wedbush Securities of Newport Beach, CA) engaged in unauthorized trading in elderly clients' accounts—the latest in a series of purported misconduct that also included the purchase of unsuitably complex products, such as a 2016 "risky and improper recommendation leading to litigation."
In October 2019, FINRA barred Daniel Gordon Maughan (Financial West Group of Brentwood, CA) for churning and excessive trading involving a large quantity of complex products known as non-traditional exchange-traded funds (ETFs), allegedly resulting in significant losses.
Suitability remains a hot-button issue for FINRA (click here to access our archive on Suitability-related discipline), which in January 2019 once gain identified suitability and protection of senior investors from elder abuse as examination priorities.
If you have invested with any broker or financial adviser whose unsuitable recommendation of a complex or high-risk product not congruent with your investment objectives or conservative-to-moderate risk tolerance preferences, or whose failure to conduct adequate due diligence and make required disclosures (such as a prospectus that states "only appropriate for investors who can afford a complete loss") has proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.