by Howard Haykin

Scott Sibley agreed to be barred from the industry to settle FINRA charges that he effected about 900 securities purchases and sales in a customer’s 2 accounts without the customer’s authorization, knowledge or consent. FINRA further lays out the case that such violative actions was part of a broader pattern of abuse that this registered rep perpetrated in the accounts of at least 10 customers – one that involved unsuitable recommendations, undue concentrations, and trading without discretion.

BACKGROUND.   Sibley, a resident of Fort Lauderdale, FL, entered the industry in 1994. In the ensuing 22 years, he was associated as a general securities rep with 5 well-known and respected firms - Prudential Securities, Salomon Smith Barney, Janney Montgomery, Raymond James, and Moors & Cabot.

His association with Raymond James & Associates ran from 2007 to February 2015 – his violations reportedly began January 2010. RJA U5’d Sibley as of 2/18/15 "... after the firm received multiple customer complaints alleging unauthorized trading and improper use of time and price discretion. Sibley had no relevant prior disciplinary history  at the time he was U5’d.

FINRA FINDINGS.    Between January 2010 and February 2015 (a 5-year period), when Sibley was with Raymond James, he effected 900 unauthorized securities purchases and sales transactions in 2 accounts belonging to 1 customer. 139 of those transactions were equity options where Sibley sold uncovered put option contracts or closed put option contracts for the customer. Sibley effected the transactions without written authorization, and he caused the customer to carry a margin debit balance without the customer’s authorization, knowledge or consent. The customer never authorized Sibley to purchase securities in his account that would result in a debit balance.

According to FINRA’s findings, those violative actions were part of a larger pattern of abuse by this registered rep – one that involved the accounts of at least 10 customers. Among other things, FINRA found that:

• For at least 10 customers, Sibley’s recommended strategy was to over-concentrate their accounts – from 25% and 62% (per customer household) - in basic materials sector securities (e.g., precious metals). This strategy was unsuitable because all were all seniors who relied on the money in their accounts to help fund their ongoing retirements. In short, the investments did not jibe with the customers’ investment experiences, risk tolerances, investment objectives, ages and financial situations.

• For at least 3 of the 10 customers, Sibley further concentrated their accounts in precious metals securities by selling uncovered put option contracts in the sector.

►  In and around April 2013, the precious metals equities began to decrease in value, increasing the risk that the options would be assigned and the stocks put to the customers. Nevertheless, Sibley continued recommending that customers sell additional uncovered put option contracts with expirations one or more years from the sale (LEAPS), which carried even greater risk.

►  In 2014, when Sibley was selling LEAP put option contracts in 3 customers’ accounts, their accounts had concentrations in precious metals of about 40% to 60%.

• In order to effect his recommended strategy for customers to concentrate their accounts in the basic materials sector, Sibley effected at least 1,000 discretionary transactions in 14 accounts belonging to 10 customers without written discretionary authority and without the accounts being accepted by his member firm as discretionary. (Needless to say, the firm’s WSPs prohibited discretionary brokerage accounts.) The discretionary transactions involved various security types – not just limited to equities and options.

• Sibley entered at least 22 low-priced securities purchases as unsolicited when in fact they were solicited and/or effected using discretion without written authorization.

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 #2015044123501.