Broker Thomas C. Oakes (Oakes) has been suspended and fined by the Financial Industry Regulatory Authority (FINRA) concerning allegations from 2005 through May 2008, Oakes had engaged in unsuitable short term trading of low priced and/or speculative securities in the accounts of at least three customers causing substantial losses.
Oakes has been in the securities industry as a member of the FINRA since 1988. Since November 2003, Oakes has been a registered representative of Royal Securities Company (Royal). Oakes’ BrokerCheck disclosures reveal that at least 9 customer complaints have been filed against the broker. The customer complaints allege a variety of securities misconduct including securities fraud, unauthorized trading, unsuitable investments, churning, and breach of fiduciary duties.
According to FINRA, in 2005 or 2006, three customers opened new accounts at Royal with Oakes as their registered representative. Each of the customers New Account Form identified a primary investment objective of “Growth.” Royal defined a “Growth” investment objective as the goal of generating long-term capital growth through high quality equity investments consisting of large cap funds and a balanced portfolio of investment grade growth stocks with smaller positions in high grade corporate bonds. Growth investors should also be willing to assume more market risks than balance/conservative growth in return for yields that are expected to meet or slightly exceed the S&P 500 stock market index over the long run.
FINRA found that Oakes invested these customers in low-priced and/or speculative securities, many were also traded on a short-term basis. FINRA alleged that the opening of the accounts through May 2008 each customer had lost substantial value in their Royal securities accounts due to the short term trading of low priced securities. FINRA found that the losses for the customers ranged from 70%-84% of the account value. At the same time, the S&P 500 index increased in value. In addition, FINRA found that two customers accounts had excessive concentrations of 23% and 28% in low priced securities at the time that the accounts were closed.
FINRA determined that account activity was not suitable for the three customers because the activity did not meet each customer’s stated objective of Growth. All brokers and brokerage firms have an obligation to ensure that each recommendation is suitable for the investor. The suitability rule contains three primary, but distinct obligations that the broker must take into account in every recommendation: that there is a reasonable basis for the recommendation, the recommendation meets with the customer’s specific investment needs, and that the trading activity as a whole is quantitatively appropriate for the investor.
The law office of Gana LLP represents customers who have been given unsuitable investment advice and recommendations. Our consultations are free and we welcome any inquiries concerning securities matters.