Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Luke Johnson (Johnson), previously associated with Coastal Equities, INC., has at least 5 disclosable events. These events include 3 customer complaints, 2 regulatory events, alleging that Johnson recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a pending customer complaint on July 12, 2024.
The claimant alleges failure to conduct adequate due diligence before recommending and selling securities.
FINRA BrokerCheck shows a pending customer complaint with a damage request of $225,000.00 on October 31, 2023.
Claimant alleges unsuitable recommendations.
FINRA BrokerCheck shows a final customer complaint on August 11, 2023.
Luke Johnson violated A.R.S. \\u00a744-1991, fraud in connection with the offer or sale of securities and violated A.R.S 44-1999, control person liability.
FINRA BrokerCheck shows a final customer complaint on July 12, 2023.
Johnson was named a respondent in a FINRA complaint alleging that he made unsuitable recommendations to customers to purchase more than $2.35 million in illiquid alternative investments. The complaint alleges that Johnson’s recommendations to these customers to purchase illiquid alternative investments were unsuitable in light of the customers’ investment profiles- including the customers’ net worth, liquid net worth, annual income, investment objectives, risk tolerance, and, for senior customers, their ages. Johnson’s recommendations also over-concentrated the customers’ liquid net worth in illiquid and high-risk securities. Johnson earned more than $132,900 in commissions from these recommendations. The complaint also alleges that Johnson, or his assistants acting at his direction, falsified these customers’ reported net worth and liquid net worth on his member firm’s customer account information forms and the customers’ alternative investment documents, as compared to these customers’ actual net worth and liquid net worth. Johnson, or his assistants acting at his direction, also often falsified these customers’ reported risk tolerance, liquidity needs, annual income, and/or their status as an accredited investor, on the customers’ account information forms, on the customers’ subscription agreements, and on the firm’s alternative investment disclosure forms. In addition, while Johnson was associated with the firm, it had a policy that limited its customers from investing more than 35% of their liquid net worth in alternative investments. Johnson dramatically inflated his customers’ net worth and liquid net worth and dramatically understated the percentage of his customers’ assets invested in alternative investments in order to circumvent the firm’s concentration policy and its supervisory oversight.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $117,922.90 on June 09, 2023.
Customers allege unsuitable investments.
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 is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes 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. The associated person must then apply both their reasonable diligence into various investment options as well as the information gathered as to the investor’s specific needs when considering the investment recommendation. The broker must explore various alternative investment options available to address these needs and determine that there is a reasonable basis to believe that the recommendation or service being recommended is in the retail investor’s best interest.
In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Johnson has been in the securities industry for more than 15 years. Johnson has been registered as a Broker with Coastal Equities, INC. since 2012.
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.