JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches

As we have reported, claims of churning, excessive trading, and failure to supervise have plagued J.P. Turner & Company, L.L.C. (JP Turner) brokers, among other misconduct.  Recently, the Financial Industry Regulatory Authority (FINRA) imposed sanctions against Herman Mannings (Mannings), a JP Turner supervisor, concerning allegations that from February 2009, through October 2011, Mannings failed to reasonably supervise the activities of a registered representative to prevent unsuitable mutual fund switching.

On August 20, 2002, Mannings became registered with JP Turner.  On February 10, 2003, Mannings was registered as a General Securities Principal at JP Turner.  FINRA’s supervisory rule provides that each brokerage firm must establish, maintain, and enforce written procedures to supervise the types of business it engages in.  Supervision of registered representatives, registered principals, and other associated persons must be reasonably designed to achieve compliance with applicable securities laws and regulations.

FINRA found that from February 2009, through October 2011, Mannings was an Area Vice President for JP Turner and his responsibilities included the supervision of at least 30 branch offices and as many as 60 representatives. According to FINRA, a registered representative referred to as only by the initials “LG” was one of the representatives that Mannings supervised. FINRA found that LG effected approximately 335 unsuitable mutual fund switches in the accounts of 54 customers without having reasonable grounds for believing that such transactions were suitable for those customers.

FINRA alleged that LG used the proceeds of those mutual fund sales to purchase mutual funds in other fund families causing the customers to pay sales charges and commissions.  FINRA additionally alleged that on solicited trades LG recommended “’Class A” mutual fund shares that required the payment of a sales charge with each new purchase.  As a result, FINRA found that  LG’s customers paid commissions in the amount of $265,327 and other sales charges in the amount of $34,072.

FINRA alleged that Mannings’ responsibilities included performing a daily review of securities transactions through the JP Turner’s Protegent system, an electronic trade blotter that flagged trade exceptions requiring further supervisory action.  FINRA found that the system generated exceptions for mutual fund switches. FINRA also alleged that Mannings was also responsible for reviewing and approving all of LG’s “Mutual Fund Disclosure” letters describing the registered representative’s asserted explanation for a mutual fund switch.

FINRA found that LG’s mutual fund switch transactions presented multiple red flags, such as: 1) the majority of LG’s mutual fund switch transactions were marked unsolicited; 2) the average holding period for LG’s mutual fund switches was approximately five months; 3) the majority of LG’s mutual Fund switches were in Class A shares; and 4) LG’s switch disclosure forms did not contain an adequate basis or reason for the transaction.

The attorneys at Gana Weinstein LLP are experienced in investigating claims concerning claims of churning and the unsuitable sale of securities.  Our consultations are free of charge and the firm is only compensated if you recover.

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