Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) recently suspended former Cambridge Investment Research, Inc. (Cambridge) broker Steven Walstad (Walstad) alleging that Walstad recommended and effected numerous unsuitable Class A share mutual fund purchases and sales involving six customer accounts. In addition, FINRA alleged that Walstad exercised discretion in one customer’s account without the customer’s prior written authorization.
Walstad first became registered with a FINRA firm in 1996 and was associated with Cambridge from April 18, 2008, through November 30, 2012. FINRA alleged that Walstad recommended and executed 78 purchases of Class A share mutual funds in six customer accounts without a reasonable basis to believe were suitable for the customers. All financial advisors, as part of their suitability obligations, must have a reasonable basis for the investments that they recommend to customers. The reason that FINRA found that Walstad’s trades were without a reasonable basis is that the customers were charged front-end sales loads in connection with the Class A share purchases but Walstad mistakenly believed that these front-end sales loads had been waived.
Purchase of Class A shares, as opposed to purchasing Class B or C shares, is advantageous to the customers only if they held the mutual funds on a long-term basis. However, FINRA found that these customers held the Class A shares for less than thirteen months and therefore Walstad lacked a reasonable basis to believe that his recommendations to purchase Class A shares were suitable for these six customers.
FINRA also found that Walstad used discretion to execute 28 transactions in one customer’s account without the customer’s prior written authorization. According to FINRA, Walstad used discretion because he had discussions with the customer and believed that the customer wanted him to handle the account directly. However, discussions to handle an account on a discretionary basis is insufficient and FINRA found that Walstad lacked written authorization to exercise discretion in the account nor did Cambridge approve the account as a discretionary account.
Investors who have suffered investment losses may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of unsuitable investments and other breaches of brokerage firm’s obligations to the customers. Our consultations are free of charge and the firm is only compensated if you recover.