According to FINRA, Joel Christopher Riedel was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay deferred disgorgement of financial benefits received in the amount of $2,094.
Riedel caused his member firm to maintain inaccurate books and records by causing solicited Unit Investment Trust transactions in accounts to be marked by the firm's trade desk as unsolicited. Riedel's conduct continued despite being warned by the firm that solicited transactions in UITs were not permitted. Riedel also sold a UIT and purchased a different UIT in a customer's account without first getting authorization from the customer. Riedel earned sales charges of $2,094 on the transactions. The customer complained to the firm, and it settled with the customer. Later, the firm disciplined Riedel by issuing him a severe reprimand.
The suspension is in effect from January 3, 2023, through May 2, 2023.
The distinction between solicited and unsolicited transactions is fundamental in the securities industry. A solicited transaction is one where the representative recommends the security to the customer, while an unsolicited transaction is initiated by the customer without a recommendation from the representative. This distinction is important for several reasons.
First, when a representative solicits a transaction, they have a duty to ensure the recommendation is suitable for the customer. The suitability obligation does not apply to unsolicited transactions because the representative is not making a recommendation. Second, many firms have restrictions on which securities representatives can recommend. Some firms prohibit representatives from soliciting certain products, such as UITs, but allow them to accept unsolicited customer orders for those products. Third, order tickets and trade records must accurately reflect whether transactions were solicited or unsolicited for compliance and supervisory purposes.
Unit Investment Trusts are a type of investment company that holds a fixed portfolio of securities and has a defined termination date. UITs typically pay representatives substantial upfront sales charges, creating an incentive for representatives to recommend them. Because of the high sales charges and other characteristics of UITs, some firms restrict or prohibit representatives from soliciting UIT transactions.
Riedel's firm apparently had a policy prohibiting solicited UIT transactions but allowing unsolicited UIT transactions. Riedel circumvented this policy by recommending UITs to customers (solicited transactions) but then causing the transactions to be marked as unsolicited on the order tickets. This created false records that made it appear customers had initiated the UIT purchases themselves when in fact Riedel had recommended them.
The fact that Riedel continued this conduct despite being warned by the firm that solicited transactions in UITs were not permitted is particularly aggravating. The warning made clear that Riedel knew the firm's policy and chose to violate it. This demonstrates willfulness and disregard for firm policies and compliance requirements.
The unauthorized trading adds another dimension to the violations. Riedel sold one UIT and purchased a different UIT in a customer's account without first obtaining the customer's authorization. This violated the fundamental principle that representatives must obtain customer authorization before executing transactions. The fact that Riedel earned $2,094 in sales charges on these unauthorized transactions suggests a financial motivation for the misconduct.
The customer's complaint and the firm's settlement indicate that the customer was harmed and that the firm recognized liability. The firm's discipline of Riedel through a severe reprimand shows that the firm took the violations seriously.
The four-month suspension, $10,000 fine, and disgorgement of $2,094 in ill-gotten sales charges reflect the multiple violations: falsifying order records, continuing the conduct after being warned, and executing unauthorized transactions.
For investors, this case illustrates the importance of understanding whether your broker is recommending investments or simply executing your unsolicited orders. If your broker recommends a UIT or any other investment, that is a solicited transaction, and the broker has a duty to ensure the recommendation is suitable for you. You can and should ask your broker directly: "Are you recommending this investment to me, or am I asking you to buy something you have not recommended?" The answer to this question affects your broker's obligations and your firm's supervisory responsibilities.
