According to FINRA, Solomon Wei-En Hua was fined $15,000, suspended for one year, and ordered to disgorge $61,543.07 in commissions for recommending new issue preferred securities to customers without a reasonable basis to believe the securities were suitable and for sending unwarranted and misleading communications about securities.

The findings revealed that Hua failed to conduct diligence sufficient to inform him of the potential risks and rewards of NIPs generally, and of the specific NIPs he recommended. Hua erroneously believed NIPs were safe and therefore suitable for conservative investors, that interest rates and dividend payments were guaranteed, and that the securities were an ideal substitute for money market accounts and savings accounts. To the contrary, these securities did not have the benefits Hua claimed and posed substantial risks to investors. Hua did not inform his customers of these risks.

NIPs are not akin to money market or savings accounts, their interest rates and dividend payments are not guaranteed, and they are not necessarily safe or conservative investments. Rather, they carry the risk of loss of the entire invested principal. In addition, as outlined in each of the respective prospectuses, NIPs are subject to additional risks specific to each issuer. Despite these risks, Hua received $61,543.07 in commissions from these recommendations.

Hua also sent unwarranted and misleading communications regarding NIPs and other securities. He sent emails to customers and potential customers soliciting purchases of NIPs that contained unwarranted and misleading claims and did not provide a fair and balanced assessment of the securities. Hua's emails highlighted only the positive aspects of the NIPs such as the intended interest rates and interest payment dates but failed to include any discussion of the risks.

Separately, Hua sent correspondence in which he recommended two variable annuities to potential customers. In those instances, Hua altered issuer documents to show an increase in the stated interest rates on the offering documents but provided no basis for the alteration, thereby making these communications unwarranted and misleading.

Additionally, Hua used his personal cell phone to send and receive business-related text messages with a customer without notice or approval by his firm, thereby causing the firm to maintain incomplete books and records. Hua also inaccurately completed his firm's compliance questionnaire indicating that he did not use text messages to communicate with his customers for business purposes, which was false.

This case involves multiple serious violations that collectively demonstrate Hua's fundamental unsuitability for the securities industry. The lack of reasonable basis suitability violation is particularly troubling because it reveals that Hua did not understand the products he was recommending. His erroneous belief that NIPs were safe, guaranteed investments suitable as substitutes for money market accounts and savings accounts demonstrates either a profound lack of due diligence or a willful disregard for understanding the products he was selling.

The fact that Hua characterized NIPs as safe and guaranteed is directly contrary to the prospectuses for these securities, which would have clearly disclosed the risks including potential loss of principal, interest rate risk, credit risk, and liquidity risk. Hua's failure to read or understand these prospectuses before making recommendations to customers is a fundamental breach of his obligations as a registered representative.

The misleading communications compound the suitability violations by showing that Hua was actively misleading customers about the characteristics of NIPs. By highlighting only positive aspects like interest rates while omitting any discussion of risks, Hua's communications gave customers a completely one-sided and inaccurate view of these investments. This is precisely the type of misleading communication that FINRA rules are designed to prevent.

Even more egregious, Hua altered issuer documents for variable annuities to show higher interest rates than actually offered, without any basis for these alterations. This conduct borders on fraud, as it involved creating false documents that misrepresented the terms of investments to potential customers.

The violations related to text messages and false compliance questionnaire responses demonstrate that Hua was also failing to meet basic recordkeeping requirements and was dishonest with his firm about his communications practices.

The one-year suspension and disgorgement of over $61,000 in commissions appropriately address the serious and multifaceted nature of Hua's misconduct. Investors should be extremely cautious about representatives who characterize complex securities as simple or guaranteed, particularly when those representations contradict the securities' offering documents. New issue preferred securities, despite the name "preferred," carry substantial risks and are not suitable substitutes for FDIC-insured savings accounts or money market funds.