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NEWSLETTERS & ALERTS
CUSO Supervisor ‘Rubber-Stamped’ Transactions He Didn’t Understand - FINRA
Richard Gholson, a former supervisory principal with CUSO Financial Services, agreed to a $5K fine and a 30-day suspension as principal, to settle FINRA charges that he failed to reasonably supervise a registered rep’s sale of unsuitable unit investment trusts (UITs).
ABOUT THE RESPONDENT. According to BrokerCheck, Richard Gholson entered the securities industry in 1980 and earned his Principal Licenses in the mid-1980’s: Series 27 (FinOp), Series 4 (ROP), Series 53 (Muni Securities), Series 24 (General Securities), and Series 39 (Direct Participation Programs). In the ensuing 37 years, Gholson has been registered with 24 different broker-dealers, spending 9 years with CUSO Financial Services - from 2007 to November 30, 2016, when the firm U5’d him. It’s unfortunate, perhaps ironic, that Gholson has no prior disciplinary history.
FINRA’S FINDINGS. A registered rep under Gholson’s supervision recommended and sold 70 UITs that invested in closed-end bond funds to 45 CUSO customers; some of the customers were seniors. Gholson failed to adequately supervise this broker by reviewing and approving these unsuitable transactions.
According to FINRA examiners, Gholson did not sufficiently understand the potential risks of the UITs and, in particular, did not understand that those UITs might employ leverage. He apparently just ‘rubber-stamped’ the tickets without making the effort to read the prospectuses. Had he done so, Gholson would have learned that the UIT invested in closed-end bond funds, some of which might employ the use of leverage in their portfolios and that this leverage subjects the fund to increased risks.
As it turned out, CUSO customers lost $443,000 of the $4.6 million invested in these unsuitable UITs – most, but not all were sold under Gholson’s watch.
TAKE AWAY. As noted above, Gholson had a clean FINRA record for 36 years. But that 37th year may forever stain his legacy. “Suspended from all Principal Capacities.” He “did not understand” and “failed to conduct sufficient due diligence” on the securities he approved for sale to customers of his member firm’s customers. With any luck, Gholson will get a reprieve and hook up with another firm. We’re sure he’s learned his lessons.
This case was reported in FINRA Disciplinary Actions for March 2017.
For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2013039239101.