← Broker database 2024-10-11
George Herman Snyder IV Suspended for Regulation Best Interest Violations and Unauthorized Discretion
According to FINRA, George Herman Snyder IV was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for five months, and ordered to pay deferred disgorgement of commissions received in the amount of $3,699.03, plus interest, on October 11, 2024.
Snyder willfully violated Regulation Best Interest by recommending that 13 retail customers make purchases of securities without having a sufficient understanding of the risks and features associated with the products he recommended, and without analyzing whether the recommendations were in the best interest of his customers. Snyder recommended the customers invest in leveraged exchange traded funds, also known as Non-Traditional Exchange-Traded Products (NT-ETPs), and equity securities of two companies engaged in crypto asset mining.
Snyder did not have an understanding of the features and risks associated with the investments, including the holding-period risk of NT-ETPs or the volatility of the recommended stocks, and he was unfamiliar with the strategies or relative costs of the products. Snyder's customers had minimal or no experience investing in these products, and he did not consider his customers' specific investment profiles. Six of the customers were senior investors, two of whom had a moderate risk tolerance, and five additional customers had conservative or moderate risk tolerances.
The customers who purchased the recommended stocks suffered total realized losses of approximately $30,000. Snyder's member firm offered rescission of the transactions to each of the customers. Snyder received total commissions of $3,699.03 in connection with all of his customers' purchases.
Additionally, Snyder caused his firm to make and preserve inaccurate books and records by mismarking order tickets associated with the recommendations he made as unsolicited when he had solicited the trades. Snyder also exercised discretion without written authorization when effecting six of the transactions. The customers had given Snyder implied authority to exercise discretion in their accounts, but his firm's written supervisory procedures prohibited discretionary trading in brokerage accounts.
This case demonstrates multiple layers of violations involving lack of understanding of complex products, failure to consider customer suitability, mismarking of order tickets, and unauthorized discretion. Snyder recommended complex, risky products—leveraged ETFs and crypto mining stocks—without understanding them himself and without properly analyzing whether they were suitable for his customers.
Leveraged ETFs are designed for short-term trading and can lose significant value if held for extended periods, even if the underlying index performs well. This holding-period risk makes them unsuitable for most retail investors. Crypto mining stocks are highly volatile and speculative. Recommending these products to senior investors with conservative or moderate risk tolerances demonstrates fundamental unsuitability.
The fact that Snyder was unfamiliar with the strategies or relative costs of the products he recommended is particularly troubling. A broker who doesn't understand an investment should not be recommending it to customers. This violates the reasonable-basis suitability obligation under Regulation Best Interest.
The mismarking of order tickets as unsolicited when Snyder actually solicited the trades appears to be an attempt to avoid suitability review. When trades are marked unsolicited, firms may not conduct the same level of suitability review as for solicited trades. By falsely marking solicited trades as unsolicited, Snyder circumvented his firm's supervision.
The exercise of discretion without written authorization is another serious violation. Discretionary trading requires specific written authorization from the customer and firm approval. Even if customers gave implied authority, that does not satisfy the requirements for discretionary trading.
For investors, this case illustrates the danger of brokers recommending complex products they don't understand. Investors should ask detailed questions about any recommended investment and ensure the broker can clearly explain how it works, what risks it involves, and why it's suitable for you specifically.
Red flags include: recommendations for leveraged or inverse ETFs to buy-and-hold investors, recommendations for crypto-related investments to conservative investors, brokers who can't clearly explain how an investment works, and mischaracterization of solicited trades as unsolicited.
The five-month suspension from October 21, 2024, through March 20, 2025, and disgorgement of commissions ensures Snyder does not profit from his unsuitable recommendations.