Bad Brokers

According to FINRA, Berthel, Fisher & Company Financial Services, Inc. was censured and fined $100,000 for failing to exercise due diligence when approving options trading and for recommending unsuitable options transactions to a customer.

The firm failed to verify a customer's investment experie...

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According to FINRA, Berthel, Fisher & Company Financial Services, Inc. was censured and fined $100,000 for failing to exercise due diligence when approving options trading and for recommending unsuitable options transactions to a customer.

The firm failed to verify a customer's investment experience and knowledge when reviewing a request for options trading approval. A broker recommended that the customer begin trading options to generate income, and submitted a form indicating the customer had good knowledge of options and moderate experience trading them. In reality, the customer had little or no knowledge of options and zero experience with options investing.

The firm also failed to apply its own income and net-worth guidelines for options trading. These guidelines should have limited the customer to the firm's Level 1 options trading, which included only covered-call writing. Instead, the firm approved the customer for Level 2, which included riskier types of options trading. The firm approved this without providing the required written explanation for deviating from its guidelines.

The broker then recommended unsuitable options transactions, including purchases of call and put options that carried the risk of total loss if they expired out of the money. These transactions resulted in net losses of more than $31,000 in the customer's account.

The findings also revealed broader supervisory failures. The firm failed to enforce its written procedures regarding options trading. Contrary to those procedures, the firm approved options trades while failing to respond to red-flag warnings that many transactions were potentially unsuitable. The firm did not provide options-specific training for its registered options principals and did not oversee their activities. The reports used for daily review of options transactions did not include information relevant to suitability reviews, such as the account's profit or loss over time.

Investors should understand that options trading involves significant risks and is not appropriate for inexperienced investors. Firms must conduct proper due diligence before approving options trading and must adhere to their own suitability guidelines. Warning signs of unsuitable options trading include frequent transactions, high commissions relative to account value, and recommendations that do not match your investment experience or objectives.

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According to FINRA, Morgan Stanley & Co. LLC was censured and fined $225,000 for improperly deleting expiring over-the-counter options positions from its Large Options Positions Reporting (LOPR) system reports.

The firm implemented a new LOPR system that deleted expiring OTC option positions on t...

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According to FINRA, Morgan Stanley & Co. LLC was censured and fined $225,000 for improperly deleting expiring over-the-counter options positions from its Large Options Positions Reporting (LOPR) system reports.

The firm implemented a new LOPR system that deleted expiring OTC option positions on their expiration dates, resulting in under-reporting of OTC option positions to the LOPR system. This reporting system is designed to provide regulators with visibility into large options positions that could pose systemic risks to the markets.

The supervisory failures were particularly concerning. The firm failed to establish and maintain a supervisory system and written procedures reasonably designed to comply with its LOPR reporting obligations. Most notably, the firm did not test the new system for the deletion of expiring OTC positions from its LOPR reports, despite having been previously disciplined for that exact issue. This represents a failure to learn from past violations and implement adequate controls.

Following the discovery of this violation, the firm updated its written procedures to include an OTC expiry review, which should have been in place before implementing the new system.

While LOPR reporting may seem like a technical regulatory requirement, it serves an important purpose in monitoring market risk. Large options positions can significantly impact market stability, and regulators rely on accurate reporting to identify potential risks. When major firms under-report their positions, it undermines the effectiveness of regulatory oversight.

Investors should understand that a firm's compliance with reporting requirements reflects its overall commitment to regulatory obligations. The failure to test a new system before implementation, especially after previous discipline for the same issue, suggests inadequate risk management and compliance culture. For investors, particularly those with large or complex portfolios, working with firms that demonstrate strong compliance practices is important for ensuring proper oversight of their investments.

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According to FINRA, Gina Rea Kidd was barred from association with any FINRA member in all capacities for failing to appear for on-the-record testimony.

FINRA was investigating allegations contained in a Form U5 filed by Kidd's member firm stating that her employment was terminated after allegati...

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According to FINRA, Gina Rea Kidd was barred from association with any FINRA member in all capacities for failing to appear for on-the-record testimony.

FINRA was investigating allegations contained in a Form U5 filed by Kidd's member firm stating that her employment was terminated after allegations that she involved an unregistered person in activities that require registration. Kidd initially cooperated with the investigation by providing documents and information. However, she failed to appear for scheduled testimony despite multiple opportunities to do so.

Kidd's testimony was material to FINRA's investigation into her conduct at the firm, and her failure to provide it impeded the investigation. The involvement of unregistered persons in activities requiring registration is a serious violation because registration requirements exist to ensure that individuals working with the public have passed qualifying examinations and meet fitness standards.

When individuals refuse to cooperate with FINRA investigations, it prevents regulators from determining whether violations occurred and protecting investors from potential misconduct. This is why FINRA treats failures to appear for testimony or provide requested information as serious violations warranting severe sanctions such as bars.

Investors should understand that registered individuals have an obligation to cooperate with regulatory investigations, even after leaving a firm. The refusal to testify often suggests an attempt to hide misconduct. When checking a broker's background through BrokerCheck, investors should pay attention to termination reasons and any disciplinary actions for failure to cooperate with investigations. Such red flags indicate that the individual may have engaged in misconduct and attempted to avoid accountability. Working with registered representatives who have clean regulatory records and have demonstrated willingness to cooperate with oversight is important for investor protection.

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According to FINRA, Marianne O'Shee Smith was barred from association with any FINRA member in all capacities for converting $45,100 from customers at her member firm.

Smith's customers, all of whom were senior citizens, gave her checks totaling $45,100 made payable to a mutual fund company affil...

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According to FINRA, Marianne O'Shee Smith was barred from association with any FINRA member in all capacities for converting $45,100 from customers at her member firm.

Smith's customers, all of whom were senior citizens, gave her checks totaling $45,100 made payable to a mutual fund company affiliated with the firm. The customers directed Smith to use the checks to fund their mutual fund investments. Instead, Smith used the checks, without the customers' prior knowledge or consent, to purchase mutual fund shares for a family member.

Smith wrote her family member's mutual fund account number and fund ticker symbol on each customer check and sent the checks to the mutual fund company to be credited to the family member's account. This represents theft from vulnerable senior citizen customers who trusted Smith to handle their investments properly.

After discovery of Smith's misconduct, the customers were reimbursed in full. However, the breach of trust and the targeting of senior citizens makes this violation particularly egregious. Senior citizens are often targeted for financial exploitation because they may have accumulated savings and may be less likely to closely monitor their accounts.

Conversion of customer funds is one of the most serious violations in the securities industry. It represents a fundamental betrayal of the trust that clients place in their financial advisors. This is why such conduct results in permanent bars from the industry.

Investors, particularly seniors, should take steps to protect themselves from conversion. This includes reviewing all account statements carefully, verifying that checks are deposited to the correct accounts, and requesting confirmation for all transactions. Having a trusted family member or friend review statements can provide an additional layer of protection. Investors should also be aware that registered representatives should never ask for checks to be made payable to anyone other than the official custodian of the investment account. Any such request is a major red flag.

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According to FINRA, Stephen Spencer Gladstone was barred from association with any FINRA member in all capacities for refusing to provide complete on-the-record testimony.

FINRA was investigating Gladstone's potential undisclosed private securities transactions. Gladstone appeared for testimony, ...

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According to FINRA, Stephen Spencer Gladstone was barred from association with any FINRA member in all capacities for refusing to provide complete on-the-record testimony.

FINRA was investigating Gladstone's potential undisclosed private securities transactions. Gladstone appeared for testimony, but before the testimony was complete, he informed FINRA that he would refuse to answer any further questions and that he had no intention of ever providing further testimony. This refusal to complete testimony prevented FINRA from fully investigating the potential violations.

Private securities transactions, sometimes called selling away, occur when a registered representative engages in securities transactions outside the regular course of their employment and without their firm's knowledge or approval. These transactions are particularly dangerous for investors because they occur outside the firm's supervision and may not be covered by SIPC insurance or the firm's errors and omissions insurance.

When individuals refuse to cooperate with regulatory investigations, it prevents regulators from determining the full scope of potential misconduct and protecting other investors. The refusal to testify is itself a serious violation because it undermines the regulatory system that depends on cooperation from registered individuals.

Investors should be aware that registered representatives must disclose any private securities transactions to their firms and obtain approval before participating in them. If a broker suggests an investment opportunity outside of their firm, this should raise immediate concerns. Investors should verify that any investment is held at the broker's firm and properly documented. Checking a broker's BrokerCheck record can reveal whether they have been disciplined for private securities transactions or failure to cooperate with investigations. A pattern of refusing to provide information to regulators is a major red flag indicating potential misconduct and lack of accountability.

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According to FINRA, Wesley Cummings was barred from association with any FINRA member in all capacities for refusing to provide information and documents requested by FINRA.

FINRA was investigating the circumstances giving rise to Cummings's termination from his member firm. The firm had filed a ...

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According to FINRA, Wesley Cummings was barred from association with any FINRA member in all capacities for refusing to provide information and documents requested by FINRA.

FINRA was investigating the circumstances giving rise to Cummings's termination from his member firm. The firm had filed a Form U5 stating that it terminated Cummings's employment because of business expenses that were neither reasonable nor necessary in amount and type to operate a branch office. This suggests potential misuse of firm resources or improper expense reporting.

When FINRA requested information and documents about these circumstances, Cummings refused to provide them. This refusal prevented FINRA from conducting a full investigation into the alleged misconduct and determining whether Cummings had violated industry rules or securities laws.

The obligation to cooperate with FINRA investigations is a fundamental requirement for all registered individuals. Even after termination from a firm, individuals remain subject to FINRA's jurisdiction and must respond to requests for information. Refusal to cooperate is treated as a serious violation because it obstructs regulatory oversight and prevents FINRA from protecting investors.

Expense-related misconduct can include submitting false expense reports, using firm resources for personal benefit, or otherwise misappropriating firm funds. While these violations may not directly harm customers in the same way as sales practice violations, they reflect on an individual's honesty and integrity, which are essential qualities for anyone handling customer investments.

Investors should understand that Form U5 disclosures can provide important information about why a broker left a firm. Terminations for cause, particularly those involving financial impropriety, should raise concerns. When combined with a refusal to cooperate with regulatory investigations, these red flags suggest serious problems. Investors can access this information through FINRA BrokerCheck before entrusting their money to a financial professional.

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According to FINRA, Jonathan Adam Stuffer was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating the circumstances of Stuffer's termination from his member firm. The firm had filed a Form U5 disclosing that i...

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According to FINRA, Jonathan Adam Stuffer was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating the circumstances of Stuffer's termination from his member firm. The firm had filed a Form U5 disclosing that it discharged Stuffer for participating in an outside business activity that was not disclosed to the firm, and for applying for and receiving Small Business Administration loan amounts that he was allegedly not eligible to receive. The SBA loan reference suggests potential fraud related to COVID-19 relief programs.

When FINRA requested that Stuffer appear for testimony to investigate these allegations, he refused to appear. This refusal prevented FINRA from conducting a complete investigation into the alleged violations and determining their full scope and impact.

Outside business activities must be disclosed to a broker's firm so the firm can assess potential conflicts of interest and ensure proper supervision. The failure to disclose such activities prevents the firm from protecting customers and monitoring for potential violations. The additional allegation regarding improper SBA loans raises concerns about dishonesty and potential criminal conduct.

Refusal to appear for testimony is a serious violation that results in a bar from the industry. It suggests an attempt to avoid accountability and prevents regulators from uncovering the full extent of potential misconduct. This is particularly concerning when the underlying allegations involve both undisclosed business activities and potential fraud.

Investors should be aware that registered representatives have an obligation to disclose outside business activities to their firms and to cooperate with regulatory investigations. The combination of termination for cause and refusal to cooperate with investigators is a major red flag. Investors can check FINRA BrokerCheck to see if a broker has been terminated for cause or disciplined for failure to cooperate, both of which should raise serious concerns about trustworthiness and integrity.

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According to FINRA, John Winslow was barred from association with any FINRA member in all capacities for refusing to produce information and documents requested by FINRA.

FINRA was investigating the circumstances disclosed in a Form U5 filed by Winslow's member firm. The firm disclosed that it ha...

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According to FINRA, John Winslow was barred from association with any FINRA member in all capacities for refusing to produce information and documents requested by FINRA.

FINRA was investigating the circumstances disclosed in a Form U5 filed by Winslow's member firm. The firm disclosed that it had terminated Winslow's employment because he failed to disclose that he received funds from a client. The firm subsequently filed an amended Form U5 that further disclosed that Winslow's client alleged that he had not returned any of the funds that were transferred to him and refused to do so.

These circumstances suggest potential conversion of customer funds, which is the unauthorized taking of customer money for personal use. This is one of the most serious violations in the securities industry as it represents theft from clients who trusted their broker with their money.

When FINRA requested information and documents about these circumstances, Winslow refused to provide them. This refusal prevented FINRA from conducting a thorough investigation into whether Winslow converted customer funds and determining the full extent of any customer harm.

The obligation to cooperate with regulatory investigations exists to allow FINRA to protect investors and maintain market integrity. Refusal to cooperate, particularly when the underlying allegations involve potential theft of customer funds, is treated as an extremely serious violation.

Investors should understand that registered representatives should never receive funds directly from clients except in very limited circumstances with proper disclosure and approval. If a broker asks for money to be sent directly to them rather than to the firm or custodian, this is a major red flag. The failure to return client funds when requested, combined with refusal to cooperate with investigators, strongly suggests conversion. Investors can check FINRA BrokerCheck to see termination reasons and disciplinary actions, which can reveal patterns of problematic behavior before entrusting money to a financial professional.

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According to FINRA, Shawn Edward Good was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating a Form U5 filed by Good's member firm. The firm disclosed that it had terminated Good's registration because he dec...

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According to FINRA, Shawn Edward Good was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating a Form U5 filed by Good's member firm. The firm disclosed that it had terminated Good's registration because he declined to cooperate with an internal firm review following client accusations. The nature of the client accusations was not specified, but Good's refusal to cooperate with both the firm's internal review and FINRA's investigation prevented regulators from determining what violations may have occurred.

Registered representatives have an obligation to cooperate with both their firms' compliance reviews and regulatory investigations. This cooperation is essential for protecting investors and maintaining market integrity. When a broker refuses to cooperate with an internal firm review following client accusations, it raises serious concerns about what they may be trying to hide.

FINRA's authority to conduct investigations depends on cooperation from registered individuals. The refusal to appear for testimony prevents FINRA from gathering facts necessary to determine whether violations occurred and whether other investors may be at risk. This is why failure to cooperate is treated as an independently sanctionable violation that typically results in a bar from the industry.

The combination of client accusations, refusal to cooperate with the firm's internal review, termination, and then refusal to cooperate with FINRA's investigation represents a pattern of avoiding accountability. This pattern strongly suggests that the underlying conduct was serious and that the individual was attempting to prevent the full facts from coming to light.

Investors should understand that brokers who refuse to cooperate with compliance reviews and regulatory investigations pose a high risk. This type of obstruction prevents both firms and regulators from protecting investors. Before working with a financial professional, investors should check FINRA BrokerCheck for any history of termination for cause or disciplinary actions for failure to cooperate with investigations.

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According to FINRA, Robert Wayne Mooney was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating allegations disclosed in a Form U5 filed by Mooney's member firm. The firm disclosed that Mooney had left while u...

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According to FINRA, Robert Wayne Mooney was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony.

FINRA was investigating allegations disclosed in a Form U5 filed by Mooney's member firm. The firm disclosed that Mooney had left while under investigation after allegations of having an unauthorized ownership interest in an independent insurance agency and referring property and casualty insurance customers to that agency. This suggests potential conflicts of interest and undisclosed outside business activities.

When a registered representative has an ownership interest in a separate business and refers clients to that business, it creates a conflict of interest that must be disclosed to the firm. The firm needs to know about such arrangements to evaluate whether they are appropriate and to supervise them properly. Referring customers to a business in which the representative has an undisclosed financial interest can violate suitability obligations and constitute a failure to disclose material conflicts of interest.

When FINRA requested that Mooney appear for testimony to investigate these allegations, he refused. This refusal prevented FINRA from determining the full facts about the ownership interest, the referral arrangement, and any potential harm to customers.

The obligation to cooperate with regulatory investigations is fundamental to FINRA's ability to protect investors. When individuals refuse to testify, it prevents regulators from gathering the information necessary to determine whether violations occurred and whether other customers may be at risk. This is particularly concerning when the underlying allegations involve undisclosed financial interests and referral arrangements.

Investors should be aware that their financial advisors must disclose any outside business activities and any financial interests they have in businesses to which they refer clients. Undisclosed conflicts of interest can lead to biased recommendations that serve the advisor's interests rather than the client's. Investors can check FINRA BrokerCheck to see if a broker has been disciplined for undisclosed outside business activities or failure to cooperate with investigations, both of which are serious red flags.

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