Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Kevin Cory (Cory), previously associated with R. F. Lafferty & Co., INC., has at least one disclosable event. These events include one regulatory event, alleging that Cory recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on May 26, 2023.
Without admitting or denying the findings, Cory consented to the sanction and to the entry of findings that he intentionally misrepresented and omitted material facts in communications with his former customers. The findings stated that when Cory was not registered or associated with a member firm, two of his former customers, a married couple, invested $500,000 of their retirement funds in a purported investment fund formed and managed by Cory. The offering memorandum for the fund, which was prepared by Cory, represented that the fund’s strategy was to invest in global equity securities, with an overall long market bias. However, instead of pursuing this strategy, Cory used the former customers’ funds to make loans to various small businesses, including businesses owned by Cory or managed by his friends and associates. The small businesses, including those owned by Cory, defaulted on the loans from the fund. As a result, the fund had no assets, and its corporate registrations were cancelled for failure to pay taxes. After Cory associated with a firm, the former customers made periodic inquiries with him regarding their investment in the fund and requested account statements for their investment. Cory prepared and sent the former customers fictitious account statements wherein he intentionally misrepresented that their investment in the fund had risen in value when, in fact, their investment was worthless. Cory also intentionally misrepresented and omitted material facts regarding the value of the former customers’ investment in the fund, the nature of the fund’s loans to small businesses, and his collection efforts on the overdue loans. In addition, Cory falsely claimed that individuals other than him were responsible for preparing financial information for the fund. The findings also stated that Cory violated FINRA’s standards for communications with the public by distributing false and misleading communications to his former customers.
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 standard applies when a registered representative is providing investment advice through making recommendations customers and covers securities transaction, investment strategies, and recommendations concerning advice on opening of an account or accounts. Reg BI applies when brokers recommend a retail investor engage in securities transaction or an investment strategy involving one or more securities. Reg BI also applies to financial advice concerning the transfer of funds and opening of accounts.
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. Reg BI was meant to enhance the duties that registered representatives have to their clients by applying fiduciary principles to transactions and investment strategies by prohibiting brokers from placing their own financial interests ahead of the best interests of their client – the investor. There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which require brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations include three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions.
Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the advisor must use their knowledge of the first two elements to consider reasonably available investment option alternatives and come to the conclusion that there is a reasonable basis to believe that the recommendation or advice being provided is in the retail investor’s best interest. An advisor must understand the type of account, securities, and their client in order to meet their care obligations. The type of securities account has the potential to greatly affect retail customers’ costs and investment returns. Different types of securities accounts can offer different features, products, or services, and not all types of accounts or services would be in every investor’s best interest.
Cory has been in the securities industry for more than 11 years. Cory has been registered as a Broker with R. F. Lafferty & Co., INC. since 2017.
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.