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Investments - Unsuitable

Unsuitable REIT Recommendations By a Broker with a Spotless Record

July 24, 2020

by Howard Haykin



FINRA recently disciplined a Louisville, KY-based broker with LPL Financial for having falsified firm records and recommending that 3 elderly customers purchase unsuitable real estate investment trusts (REITs).
  • The recommendations to purchase $254,000 in illiquid REITs were inconsistent with the customers’ investment profiles.
  • The falsification of records occurred when the broker grossly overstated the liquid net worth of each customer.
To settle the charges, the broker agreed to pay nearly $16,000 in fines and disgorgement and serve a 6-month suspension.



There’s nothing in the facts and circumstances of this case to indicate that these elder investors had any way of discerning the broker’s ulterior motives. In fact, at the time these purchases were made, between 2014 and 2015, this broker had not incurred any complaints, violations or disclosures throughout his 30 years’ experience in financial services.


Yet, in late 2016, a spate of formal customer disputes began to populate the broker’s CRD Record on FINRA’s Brokercheck, along with a bankruptcy filing. Of the 11 posted disputes - 8 of which were settled and 2 are pending – customers most often alleged misrepresentation and unsuitable investments



These findings prompt several questions for FINRA, the broker-dealer regulator:
  • When did the broker commit the alleged violative conduct in these other customer disputes?
  • How, if at all, did these other disputes factor into the severity of the sanctions imposed by FINRA?
  • Why did FINRA not refer to, or otherwise include, these additional customer disputes in its complaint against the broker – particularly when 5 disputes made reference to ‘alternative investments’?



[For further details, click on … FINRA Case #2018058133301.]