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NEWSLETTERS & ALERTS
Unsuitable Trading: Why a Broker Was Barred from the Industry
by Howard Haykin
In a default judgment, a hearing officer for FINRA’s Office of Hearing Officers (OHO) issued a default judgment that barred David Bolton from the industry – after Bolton failed to answer FINRA complaints related, in part, to charges that he engaged in unsuitable short-term trading in the accounts of his 2 largest customers, one of whom was the 101 year-old mother of the other.
FINRA further charged Bolton with: (i) causing a member firm to maintain inaccurate books and records; and, (ii) causing a member firm to fail to preserve books and records. Each violative conduct warranted a $20K fine and a 1-year suspension for each violation warranted - though both were disregarded in view of the barring.
FINRA FINDINGS. From July 2012 through June 2015, while working at Signator Investors and then at Thurston, Springer, Miller, Herd & Tibak, Bolton engaged in unsuitable short-term mutual fund trading in the accounts of 2 customers - “JK” and “AK” (aged 101, JK’s mother).
- Bolton engaged in 60 unsuitable short-term trades, selling mutual funds in JK’s and AK’s accounts within 3 to 9 months of purchasing them.
- Bolton unsuitably split $731,000 in investment funds in JK’s accounts between 42 different mutual funds in 11 fund families – the objectives and risks of the new mutual funds were similar to those of the funds that were sold.
- The short-term nature of the trades conflicted with JK’s and AK’s longer-term investment horizon and made the trades presumptively unsuitable.
- The short-term trades generated unnecessary expenses and costs to the customers: (i) $24,747 in sales charges; and, (ii) the inability to take advantage of breakpoints available for larger investments, due to his splitting of JK’s investment funds into 42 different mutual funds in 11 fund families.
- NOTE: Bolton’s former employer reimbursed the customers for their losses, resulting in injury to that firm.
SANCTIONS HANDED DOWN BY HEARING OFFICER (ADJUDICATOR). For Unsuitable Recommendations, the FINRA Sanction Guideline recommends a fine (of $2,500 to $110,000) and a suspension (of 10 business days to 2 years). Where aggravating factors predominate – as detailed by Principal Considerations in Determining Sanctions - the adjudicator should strongly consider a bar.
The adjudicator found that aggravating factors predominate in this case, and there are no mitigating factors. Accordingly, the adjudicator barred Bolton from the industry.
- Bolton did not accept responsibility for or acknowledge his misconduct prior to detection. [Principal Consideration #2]
- Bolton engaged in numerous acts and a pattern of misconduct over an extended period. [Principal Considerations #8 and #9]
- Bolton’s misconduct was the result of intentional acts, resulting in his monetary gain. [Principal Considerations #13 and #16]
- Bolton injured customers JK and AK. [Principal Consideration #11]
- One of the injured customers was 101 years old and was not a sophisticated investor. [Principal Consideration #18]
This case was reported in FINRA Disciplinary Actions for November 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016049775701.