According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Scott Smith (Smith), previously associated with J.w. Cole Financial, INC., has at least 3 disclosable events. These events include one customer complaint, 2 regulatory events, alleging that Smith recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on March 08, 2024.
As a result of the investment advisor’s previous FINRA suspension and monetary penalty, the state of California is placing a restriction on the investment advisor’s business activities for a period of two years through an ‘Agreement of Undertaking for Investment Advisory Representative’s Employment in California’.
FINRA BrokerCheck shows a final customer complaint on January 05, 2023.
Without admitting or denying the findings, Smith consented to the sanctions and to the entry of findings that he borrowed $78,000 from an elderly customer through five separate loans without providing prior written notice to or obtaining written approval from his member firm. The findings stated that the customer, who was one of Smith’s retail customers at the firm, was not Smith’s immediate family member nor was she in the business of lending money. The amounts of the loans ranged from $3,000 to $40,000, and Smith used the funds to pay for personal expenses. No payment terms were discussed or memorialized for any of these loans, nor did Smith provide any promissory notes for these loans. After receiving a complaint from the customer’s estate, Smith repaid each of the five loans. Further, Smith concealed the loans from the firm by instructing the customer to wire the proceeds for certain of the loans from one of her firm accounts to her personal checking account, which she held outside of the firm, and then to write a check payable to a member of Smith’s immediate family. On one occasion Smith instructed the customer to wire money directly from her firm account to Smith’s mother-in-law-again to evade detection by the firm. Moreover, on three compliance attestations, Smith falsely attested that he had not received a loan from any firm client. The findings also stated that Smith settled a customer complaint without his firms’ knowledge or approval. Following the death of the customer, her daughter discovered that the customer had made loans to Smith, and her estate demanded that Smith provide a full accounting of all loans outstanding. In response to that demand, Smith sent an attorney representing the estate a check for $40,000, which the estate accepted. Smith did not notify the firm that the customer’s estate had complained that he had borrowed money from the customer or that that he had paid money to her estate to settle the complaint. In addition, after Smith had left the firm and while he was registered with FINRA through an association with another firm, Smith offered the customer’s estate a second check for $25,000, which the estate accepted. This check was also in response to the estate’s demand for a full accounting of the loans Smith took from the customer. Before making the second payment, Smith did not notify either firms of the complaint by the customer’s estate, nor did he seek or receive authorization from either firm to resolve the complaint.
FINRA BrokerCheck shows a settled customer complaint on March 30, 2020.
Client’s attorney alleges the financial advisor took a loan from the client.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened.
Another aspect of the care obligation is focusing on the client’s specific needs which brokers must reasonably understand through obtaining information for the client’s investment profile. In completing a customer’s investment profile the advisor should include information such as the investor’s investment time horizon; liquidity needs; risk tolerance; experience with various investment vehicles; investment objectives and financial goals; assets and debts including outside investment accounts; marital status; tax information; age; and other relevant information that may be individual to the investor that the advisor would need to know to properly render advice or provide services. The Reg BI rule applies a fiduciary principles and requires an associated person to act in the retail investor’s “best interests” while barring the broker from placing their own financial interests and compensation incentives ahead of the investor’s best interest. Reg BI comes with different key obligations that associated persons must meet in dispensing advice. The care obligation requires registered representatives to carefully evaluate investment options, review the risks and rewards of the investment or service, compare similar products, and ensure that the recommended investment is appropriate for the customer and in the retail investor’s best interest.
Next, the broker must understand the investor’s investment background and profile. A customer’s profile includes information that describes the investor’s financial situation and needs. Information here will include their outside securities accounts and investments; relevant assets and debts; tax bracket; age; liquidity needs; risk tolerance; investment time horizon; experience with investing; investment objectives; and any other relevant information that the investor may choose to disclose pertinent to their situation. Finally, the financial advisor must use their knowledge of both their reasonable diligence into investment options as well as their knowledge of the investor’s client specific needs to consider reasonably available investment options. Those investment options must allow the broker to determine that there is a reasonable basis that the recommendation is in the retail investor’s best interest. In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Smith has been in the securities industry for more than 20 years. Smith has been registered as a Broker with J.w. Cole Financial, INC. since 2020.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.