FINRA fined CUSO Financial Services and ordered restitution for 76 unsuitable unit investment trust (UIT) transactions totaling $4.6 million that regulators say resulted in losses sustained by customers whose stated low risk tolerances should have precluded them from participation in the ill-fated UIT sales. FINRA also cited CUSO principal Richard Michael Gholson for failing to adequately supervise UIT sales by registered representative Mathew (aka "Matthew") Lynn Hartshorn of the firm's Tacoma, Washington branch.
Hartshorn has faced 10 customer disputes—all of which have been settled. Complaints concerning the UITs alleged that Hartshorn's description of the investment was misleading and that his recommendation was unsuitable.
AWC #2013039239102 [CUSO]
AWC #2013039239101 [Gholson]
BrokerCheck #5732511 [Hartshorn]
The report states that CUSO and/or rep Hartshorn solicited and sold the UITs to 50 customers, including a handful of elderly investors. In turn, those UITs invested in closed-end mutual funds that employed leverage, which investigators concluded was unsuitable, especially for those investors whose risk tolerances were "low" or "medium."
FINRA also identified CUSO's supervisory procedures as deficient, and wrote that several of the unsuitable recommendations occurred, in part, because of these unsatisfactory systems and processes, including the firm's failure to adequately supervise Hartshorn's UIT sales.
Investigators found that CUSO's customers lost about $443,000 on the unsuitably sold UITs, that the firm failed to reasonably enforce written supervisory procedures (WSPs) regarding UIT reviews, and that Gholson approved Hartshorn's recommendation and sales of 70 UITs without first reviewing the UIT prospectuses or other similar documents.
The Gholson AWC indicates that he "did not sufficiently understand" the UIT's potential risks before approving their sales, including how the use of leverage might increase the funds' risk level. Hartshorn's bar from the securities industry simply indicated that Hartshorn failed to respond to FINRA's request for information.
If you have invested with CUSO Financial Services, supervisor Richard Michael Gholson, representative Mathew Lynn Hartshorn, or with any broker or financial advisor whose unsuitable recommendations and sales of leverage-supported unit investment trusts or another complex product was in contravention of your low-to-medium risk tolerances or investment objectives, and these violations of suitability have 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.