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Investor Protection

Broker Suspended 9 Months for Trying to Protect Customers

November 18, 2019

[Image:  Henny Penny warned, 'The Sky is Falling]


by Howard Haykin



"The road to hell is paved with good intentions." Here's how that proverb recently played out on Wall Street for one well-intentioned Salt Lake City broker.



In January 2016, a broker with Hornor, Townsend & Kent feared a sharp downturn in the stock market. So, without consulting any of his 57 customers, the broker liquidated all positions held in the customers' variable annuity contracts and transferred those funds into money market sub-accounts. Over the next 30 days, the stock market fell nearly 6%, appearing to bear out the broker’s concerns. But the markets reversed course and, from February 12 through year's end, the stock market gained a whopping 22.4%.  [based on results for S&P 500 Index]


GOOD INTENTIONS.    Fortunately, nobody questions the broker’s motives when he executed the 494 transactions totaling $5.3 million in his customers’ variable annuity accounts. He did so to protect the value of his customers’ accounts, and not to drum up commissions, as he received no compensation in connection the transactions.


BAD EXECUTION.    The customers' accounts did not suffer any losses and they didn't incur any fees for the transactions. And, it would appear than only one customer complained about the broker’s conduct. 


However, this broker - who had 25 years' experience - acted irresponsibly and violated the trust of his customers by not consulting them on his concerns and planned transactions. The broker also violated securities rules by executing transactions without having discretionary authority - inasmuch as securities rules and regulations require a broker to first consult with customers. 



Customers should be involved in all investment decisions - a collaboration - no matter how much they may rely on the expert advice of their brokers.

For his actions, the broker was discharged by the firm and suspended 9 months by securities regulators.



[For further details, click on FINRA Case #2017056602301.]