Securities Lawyers Blog
The securities attorneys at Gana Weinstein LLP have been investigating The GMS Group, LLC (GMS Group) broker Cormac Maughan (Maughan). According to BrokerCheck records, Maughan has been subject to 2 customer disputes involving unsuitable recommendations of municipal bonds, one of which is still pending. Maughan has also been subject to two regulatory actions in which New York Stock Exchange (NYSE) sanctioned Maughan for various violations of the securities laws, including unauthorized trading and unsuitable investments.
In November 2017, a customer alleged that from January 2009 through to November 2015, Maughan recommended Puerto Rico municipal bonds which were unsuitable to the customer’s investment needs and that Maughan breached his fiduciary duty to the client. This dispute is still pending.
In addition, in May 2004, the NYSE found that Maughan engaged in unauthorized trading by exercising discretionary power with oral but not with written authorization from customer or member firm. The NYSE also found that Maughan also engaged in unsuitable investments that were inconsistent and excessive for his customer in terms of the customer’s age, investment objectives, and financial circumstances. This violation of NYSE rules 408(a) and 3529c) resulted in a one month suspension for Maughan.
Puerto Rico Municipal bonds are speculative investments based upon the deteriorating finances of the island. They are sold with many tax benefits including US estate exemption and gift taxes. The bonds also offered a triple tax benefit to investors. However, in 2012, Puerto Rico’s bond ratings downgraded and in June 2013, Puerto Rico Power Authority (PREPA) revenue bond ratings also downgraded. Many brokers have been accused of over-concentrating these risky bonds in their clients’ investments.
All advisers are obligated to make suitable investment recommendations for their clients. In order for a recommendation to be suitable, the broker must have a reasonable basis for recommending the security/product based off the broker’s research of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs. Investment objectives and needs include the clients net worth, life savings, age, investor experience, and so on.
Advisors are also not allowed to engaged in unauthorized trading, which occurs when a broker sells securities without permission or approval from the investor. Under the NYSE Rule 408(a) and FINRA Rule 2510(b), without discretionary authority to trade the account, advisors are obligated to discuss all trades with the investor before executing them. . Unauthorized trading is often a gateway violation to other securities violations including churning, unsuitable investments, and excessive use of margin.
Maughan entered the securities industry in 1986 and has been registered with GMS Group since 2004. From 1995 to 2004, Maughan was registered with A.G. Edwards & Sons, Inc. From 1990 to 1995, he was registered with Nori, Hennon, Walsh, Inc. From 1986 to 1990, he was registered with Municipal Investors Service, Inc.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover