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Regulatory Sanctions

WWW: Broker Churns IRA Accounts, Aided and Abetted by Firm

April 3, 2017

[Photo: dullhunk / flickr]


Take Away.    When reading any case involving churning, undue concentrations, grossly unsuitable investments - particularly in IRA accounts - my first inclination is to place blame on the firm and its supervisors. Where were they when the Ref Flags popped up and why didn't they act accordingly?  When it turns out that the firm essentially promoted such malfeasance, I then wonder if the investor(s) conducted any sort of due diligence before opening the account. In this case, apparently not - which makes for a good posting, but a sad scenario. 


Richard Gomez, a resident of Jackson Heights, NY, agreed to a one-year suspension and no monetary sanction to settle FINRA charges that he engaged in several types of misconduct in the IRAs of 3 of his member firm’s customers.


ABOUT THE RESPONDENT.    Gomez entered the securities industry in 2003, and over the next 10 year was associated with 19 different FINRA-regulated firms. He was registered with Avenir Financial Group in NY, NY, from June 2013 until 10/30/15, when he was U5’d and permitted to resign for having "[n]o business for several months" and owing the Firm approximately $2,700. Gomez is not currently associated with a FINRA member firm.


FINRA FINDINGS.    Without obtaining prior written authorization from 2 of his customers - husband and wife, each a senior investor - and without their discretionary authority, Gomez churned the couple’s IRA accounts from January to November 2014. The trading was extremely excessive and inconsistent with the capital preservation investment objective and a moderate-to-moderately-aggressive risk tolerance. All told, the accounts lost $213,000 and incurred over $483,000 in commissions.


In February 2015, Gomez began executing unsuitable transactions in a 3rd customer’s IRA - also a senior investor –concentrating the customer’s assets in a single security at a time. By the time the customer learned what was going on, the account was already down $30,000 in market losses, commissions and fees. To satisfy the customer, Gomez agreed to repay the customer the $9,200 in commissions generated from his trading. After repaying about $3,000 (at the firm’s insistence), Gomez resigned from the firm.


AVENIR FINANCIAL’S MISSING OVERSIGHT.     While it’s easy for a firm to detect excessive churning in IRA accounts, it’s easier to understand why no action was taken by Avenir Financial against Richard Gomez. Simply stated, the firm was making too much money off of the accounts.


According to BrokerCheck, Avenir Financial Group was formed in 2010 and was expelled in February 2016. Before expelling the firm, FINRA filed a complaint in 2015, charging the firm with fraud in the sale of equity or promissory notes of the firm or its branch offices. In that complaint, FINRA also named Michael Clements, Avenir’s founder, CEO and CCO – for aiding and abetting the fraud.


Perhaps most ironic in this case is the fact or scenario that Avenir U5’d Gomez for owing the firm $2,700 – that after Gomez generated $483,000 in commissions and fees from 2 IRA accounts, all in 11 months. Oh well, that’s money those investors will never recover.


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# 2014039358003.