FINRA fined and suspended Wedbush Securities (Los Angeles, CA) supervisor R. James Richards for failing to enforce a written supervisory procedure related to use of margin, which in turn purportedly allowed his customer, a senior officer at Wedbush, to incur as much as a $31 million margin deficit.
Report AWC #2018058202901 states that Richards (CRD #3120249) as a supervisor in Wedbush's credit department, which oversees margin lending to firm customers, failed to respond appropriately to a multi-million dollar margin deficit in a customer's account from 2017 to 2018.
Despite allegedly having knowledge of the margin deficits, Richards allegedly failed to take reasonable action to achieve margin compliance, which would have resulted in issuing margin calls and liquidations—potentially before the margin deficit ballooned to a January 2018 high of $31 million.
Investing on margin can be a risky investment strategy and FINRA previously said that the Securities-Based Loan Margin Call Is "Exactly The Risk We Are Focused On."
In the case of Wedbush Securities principal R. James Richards, an earlier margin call—as painful as potential liquidation might be and as unsuitable as the entire strategy already is for a conservative-to-moderate investor—might have stopped the customer's growing margin deficit before it reached the $23 million-level, which is when the margin call ultimately did occur, only after FINRA's Member Supervision staff got involved.
Margin debt is a form of leverage that can exacerbate losses when the underlying securities underperform. For more information on the danger of margin in a volatile bear market, see our COVID-19 article, "Margin Trading and Complex Leveraged Products Could Amplify Losses During Coronavirus Commotion.
If you have invested with R James Richards out of Wedbush Securities' Los Angeles, California office, or with any broker or financial adviser whose recommendation of investing on margin, or whose failure to adhere to industry rules surrounding use of margin debt or any other investment strategy 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.