FINRA's 2019 Exam Priorities Feature Senior Protections, Suitability, Outside Business Activities

Attorney Advising Disclaimer

FINRA identified several sales practice risks and investor protection points of emphasis in its 2019 risk monitoring and examination priorities letter, building upon a 2018 decision to concentrate on issues of suitability and expanding those protections to senior and elderly investors (as well as those approaching retirement), and outside business activities or private securities transactions.

Writing that suitability will always be a top priority, FINRA identified overconcentration in illiquid securities, including variable annuities (VAs), non-traded alternative investments (such as REITs), and securities sold through private placements as areas of specific concern.

The regulator vowed to take a closer look at the exchange-traded product (ETP) market, which includes exchange-traded funds and notes (ETFs and ETNs), and to evaluate whether firms are meeting suitability obligations, such as through adequate supervisory procedures and policies.

FINRA identified seniors and investors approaching retirement as particularly vulnerable to fraud, sales practice abuses and financial exploitation, collectively known as elder abuse, noting that, "we are concerned about registered representatives using their role as a fiduciary to take control of trusts or other assets and direct funds to themselves."

In August 2018, for instance, the SEC instituted cease-and-desist proceedings against Ameriprise Financial Services for the firm's failure to detect widespread misappropriation by firm representatives. Among the rogue reps identified by investigators were Barbara Josephine Stark, Susan Elizabeth Walker, Jeffrey Scott Davis, Justin Matthew Weseloh, and Jennifer Rebecca Lustig Johnson, all of whom FINRA also barred.

In November 2018, Chino police arrested Robert Lee Basile (CRD #2392772) for stealing $130,000 from his elderly mother's brokerage account, while Wells Fargo previously found that two-thirds of financial crimes against the elderly are committed by trusted individuals.

It's not always as easy as a family member, either, as "trusted individuals" can mean someone that simply enters a person's life and gains their trust. When FINRA barred John Thomas Thornes of Redland, CA, investigators determined that he stole $4.2 million from two trust accounts after gaining his Alzheimer's-suffering client's trust; a similar story exists with Sony D Camarco, charged with securities fraud in Colorado.

Finally, FINRA listed outside business activities and private securities transactions in its 2019 priorities letter, writing that representatives selling away from their firm and outside of their firm's supervision remains a critical concern, specifically related to sales in which the broker also holds an interest.

Many of those who sold investments in the $1.2 billion Woodbridge Group of Companies Ponzi scheme did so by selling away from their firm and without disclosing material facts to their clients, such as their interests in Woodbridge, including personal investments in Woodbridge as well as the extent of commissions and fees associated with the sales.

The 2017-18 charges against National Securities Corporation broker and "Financial Whiz of San Diego Airwaves" Kyle Patrick Harrington (CRD #2282328) similarly pertained to selling away, and also alleged fraudulent conversion, concealment, and disclosure failures, including an undisclosed private securities transaction.

If you have invested with a broker or financial adviser who has sold you an unsuitable product, or has sold a product away from their firm without adequate disclosure as to conflicts of interest, fees, or risks, and this misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

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