Securities Lawyers Blog
As we previously reported, The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations of misconduct in several customer accounts. Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations.
In a new regulatory action, FINRA alleged that OneAmerica failed to supervise Davis and ignored numerous red flags of misconduct concerning his activities. For instance, FINRA alleged that two customers opened a OneAmerica account with Davis identifying the husband as a 65 years-old and earning between $50,001-75,000 per year. His wife was a “Homemaker” and the couple’s stated Net Worth, excluding their residence, was “$250,001-500,000″ and they had only two years of investment experience limited to stocks, bonds, and mutual funds.
Only three weeks later the couple signed an Option Agreement and were approved to trade options. FINRA found that Davis rapidly traded the options account executing 55 options transactions in May 2012; 52 options transactions in June 2012; and 53 options transactions in July 2012. This activity, according to FINRA, caused a rapid loss of account equity. FINRA found that there were multiple red flags that should have alerted the OneAmerica’s compliance department that Davis’ recommendations were unsuitable. For example, FINRA found that the couple’s account agreement reported minimal investing experience but their options agreement identified purported options (and commodities) trading experience. Also the couple’s new account agreement reported their Investment Objective as Long Term Growth but whereas their options agreement stated their objectives included speculation and hedging. Finally, FINRA alleged that the couple’s new account agreement reported their net worth was $250,000-500,000, whereas the options agreement stated their Net Worth was $640,000.