← Broker database 2024-06-24
Austin Richard Dutton Jr. Barred and Ordered to Disgorge $65,509 for Unsuitable Alternative Investments
According to FINRA, Austin Richard Dutton Jr. was barred from the securities industry and ordered to pay $65,509 in disgorgement plus interest after a hearing officer found he recommended unsuitable illiquid alternative investments to retired and near-retirement customers, falsified firm records, and failed to respond to FINRA requests.
Dutton recommended that customers—most of whom were retired or approaching retirement—purchase $1.2 million in illiquid alternative investments without having a reasonable basis to believe such investments were suitable. These recommendations generated $72,789 in commissions for Dutton and his firm. The recommendations were unsuitable based on the customers' investment profiles, including their net worth, investable assets, annual income, investment objectives, and risk tolerance.
Alternative investments such as non-traded REITs, business development companies, and private placements can be appropriate for some investors, but they carry significant risks including illiquidity, complexity, and high fees. For retired investors who may need access to their funds for living expenses or emergencies, illiquid investments that cannot be easily sold are often unsuitable. Dutton's recommendations prioritized generating commissions over serving his customers' best interests.
Making matters worse, Dutton falsified books and records of his firm to make the unsuitable recommendations appear appropriate. He falsified new account documents, Suitability Forms, Direct Business Profile and Agreements, and Accredited Investor Forms, causing these documents to contain inaccurate information about customers' net worth, risk tolerance, investment objectives, and concentration percentages in alternative investments. This document falsification was designed to make unsuitable investments appear compliant with firm policies.
Dutton also failed to respond or timely respond to FINRA requests for information and documents in connection with two separate investigations. In the investigation into his sale of alternative investments, Dutton did not respond until after FINRA initiated an expedited proceeding that would have led to a bar if he failed to comply. In a separate investigation into whether he had failed to disclose participation in a private securities transaction, Dutton indicated he would "consider" responding but ultimately failed to provide requested documents and information, even after FINRA warned that failure to respond could result in a bar.
For investors, this case illustrates several important lessons. First, be skeptical of recommendations for illiquid alternative investments, especially if you are retired or nearing retirement and may need access to your funds. Second, understand that high commissions create conflicts of interest—advisors may be financially motivated to recommend products that are not in your best interest. Third, if investment recommendations seem inconsistent with your stated investment objectives and risk tolerance, question whether the advisor is accurately representing your profile.
The bar and disgorgement order reflect the seriousness of recommending unsuitable investments, falsifying records to conceal unsuitability, and failing to cooperate with regulatory investigations. The requirement to disgorge commissions ensures Dutton does not profit from his misconduct.