Massachusetts Secretary of the Commonwealth and chief securities regulator William Galvin announced a state investigation of private placement sales and related sales practices at 10 broker-dealers based in the state.
According to an InvestmentNews report, the 10 firms under inquiry sell private placements and 15% or more of their brokers have a history of disciplinary actions or incidents, which is more than twice the industry average.
The 10 firms Galvin's group sent letters of inquiry to relative to this private placements investigation are: Advisory Group Equity Services, Arthur W. Wood Co. Inc., Bolton Global Capital, BTS Securities, Detwiler Fenton & Co., LPL Financial, Moors & Cabot, Santander Securities, US Boston Capital Corp., and Winslow Evans & Crocker.
According to a 2016 industry-wide study of financial advisers, 7% of all registered individuals have a disciplinary history, while 44% of financial advisers fired or otherwise separated from a firm due to a disciplinary issue were hired by another firm within a year of their separation.
In 2017 and again in 2018, FINRA listed high-risk brokers and firms as a regulatory priority, noting that high-risk and repeat-offender brokers and firms cause a disproportionate amount of damage and harm to customers.
For example, when FINRA fined and suspended ex-Centaurus Financial and Brookstreet Securities Corp (Newport Beach) broker Tiffany Ann De Ruosi, it followed 30 prior disclosures, including a prior California Department of Insurance disciplinary action and total customer dispute settlements exceeding $1 million, and alleging fraudulent misrepresentation, breach of fiduciary duty, and negligence.
Then again, when it comes to firms such as LPL, repeat violations are nothing new. In December 2016, FINRA fined LPL $750,000, alongside 11 other firms, for its cybersecurity failures, marking the fourth time since 2013 that FINRA or another securities regulator had sanctioned LPL for supervisory or other electronic misconduct—that's an average of one disciplinary measure every year.
According to FINRA's enforcement actions, firms which allow brokers to repeatedly make unsuitable recommendations to customers may be responsible for the damages and penalties that follow as a result of the suitability violations and supervisory deficiencies, such as LPL's $11.7 million fine in 2015 for "widespread" supervisory failures related to its complex products business, including exchange-traded funds (ETFs), variable annuities (VAs), and non-traded real estate investment trusts (REITs).
If you have invested with a brokerage firm that has sold you a private placement that was not suitable given your investment objectives, risk tolerance level, or time horizon preferences, and this unsuitable recommendation has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.