← Broker database 2023-09-18
Elba Nogueras Suspended for Regulation Best Interest Violation
According to FINRA, Elba Margarita Nogueras was fined $5,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay disgorgement of commissions received in the amount of $5,670 for willfully violating Regulation Best Interest.
Nogueras willfully violated the Care Obligation of Regulation Best Interest (Reg BI) by recommending that her customer invest in an illiquid, non-traded real estate investment trust (REIT) without having a reasonable basis to believe the investment was in the customer's best interest. Based upon Nogueras' recommendation, her customer invested $81,000, which represented 81 percent of the customer's liquid net worth, in the non-traded REIT, resulting in Nogueras earning a commission of $5,670.
Given the risk and illiquidity of investments in the non-traded REIT, Nogueras lacked a reasonable basis to believe her recommendation was in the best interest of the customer, who had a moderate risk tolerance and limited investment experience.
Regulation Best Interest, which became effective in June 2020, requires broker-dealers to act in the best interest of retail customers when making recommendations. The Care Obligation specifically requires brokers to exercise reasonable diligence, care, and skill in understanding the potential risks, rewards, and costs of a recommendation and to have a reasonable basis to believe the recommendation is in the customer's best interest based on the customer's investment profile.
Non-traded REITs are complex, illiquid investments that can be unsuitable for investors who need access to their money or who have limited investment experience. The fact that this investment represented 81% of the customer's liquid net worth meant the customer had almost all of their accessible money tied up in a single illiquid investment. This created significant concentration risk and liquidity risk that was inappropriate for someone with moderate risk tolerance and limited experience.
The disgorgement of commissions ensures that Nogueras does not profit from her violation. This case demonstrates that Reg BI has real teeth and that brokers must carefully consider customer circumstances before recommending complex or illiquid investments.