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Regulatory Sanctions

Customers Left Hanging by Their Brokerage Firms

September 22, 2019

by Howard Haykin

 

 

How well do investors know their broker and brokerage firm? And how well do they understand the investments that brokers recommend for their brokerage accounts? “Ignorance is bliss,” except when it comes to investing. After all, investors have the most to lose in this arrangement.   

 

 

Recently, a broker working for Cetera Advisor Networks, a California-based broker-dealer, cheated 14 of his customers - some of whom were senior investors. Working from his home in Pennsylvania, the broker repeatedly bought and sold hundreds of Class A mutual fund shares for his customers’ accounts.

 

Buying and selling mutual fund shares is not illegal, but doing so to run up one’s commission revenues is.  And that was the sole reason this broker engaged in these in-and-out trades – also known as short-term mutual fund ‘switches’. Class A mutual fund purchases are designed to be held for long periods - not to be bought and sold repeatedly as this broker did.

 

For years, the brokerage firm chose to award this broker for his high sales production numbers rather than punish him for misconduct. However, the broker was eventually caught by industry regulators and thrown out of the industry - though it was too late for 14 of his customers who lost nearly $700,000.

 

 

TAKE AWAYS.   The customers in this story apparently didn't know or understand investments and they placed too much trust in their broker. As a result, they never realized he was ‘stealing’ their money. 
 
Each of them could have been better protected had they brought someone in to serve as their 'financial watchdog' – a friend, a family member, an independent adviser. This is often the only way to deal with dishonest brokers and ineffectual brokerage firms.   

 

 

For further details on this case, click on ...  FINRA AWC #2014040951702.