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Regulatory Sanctions

Harvest Capital Broker Overloaded Customer Accounts with REITS

June 23, 2017

by Howard Haykin


A broker-dealer turned a ‘blind eye’ while its customers were unduly concentrated with illiquid securities over a 5-year period. Read on…


Jeffrey Davis agreed to pay a $5K fine and to serve a 1-month suspension to settle FINRA charges that he recommended and effected unsuitable transactions totaling $566,000 in customer accounts by over-concentrating their assets in illiquid nontraded Real Estate Investment Trusts (REITs).


BACKGROUND.    Davis, a resident of Bristol, CT, joined the industry as an Investment Company Products and Variable Contracts Representative in 1994. In 1996, he added his Series 7 and Series 24 licenses. From July 2001 through November 2013, Davis was registered in those 3 capacities through Harvest Capital. He currently is registered in those capacities through another FINRA member firm.


FINRA FINDINGS.    Between February 2007 and May 2012, while associated with Harvest Capital, Davis recommended REITs to 3 customers. The investments totaled $566,000, and represented between 30% and 52% of the customers' liquid net worth. These excessive concentrations in illiquid investments were unsuitable in light of the customers' financial situations, risk tolerances and investment objectives.


Davis’ alleged actions would be violations of NASD Conduct Rules 2310 (‘Recommendations to Customers – Suitability’).


FINANCIALISH TAKE AWAYS.    Undue concentrations are all too common and I’m posting this case more to chastise the firm – Harvest Capital – than to bring attention to this broker, Jeffrey Davis. For over 5 years, the portfolios of these customers held concentrated positions in REITs, an illiquid security. Even though it takes very little effort to detect such unsuitable holdings – let’s call them “low hanging fruits” – Harvest Capital’s supervisory personnel never picked it up. But, if they had, they certainly never tried to resolve the situation. had planned to induct Harvest Capital into our HALL OF SHAME, class of June 2017. However, the firm is no longer in business – having withdrawn its registration on 12/31/13. Among the disclosure events for Harvest Capital  was an arbitration  award, in which the panel ordered the firm to pay the claimant $158,000 based on its “failure to supervise.”  Not surprising!


This case was reported in FINRA Disciplinary Actions for June 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case # 2013039456301 .