FINRA Bars Former Retirement Planner After Finding Unsuitable, Unauthorized Transactions

When a broker, financial planner, retirement planner, or firm faces client complaints that escalate to a FINRA enforcement action, serious consequences to one’s professional reputation can occur. Consequences of a FINRA enforcement action can range from sanctions to the financial professional being barred from further advisement activities.

Client Alleges Financial Transactions Were Unsuitable for Investment Goals

In Department of Enforcement v. Craig David Dima a securities broker, Craig David Dima of K.C. Ward Financial was accused by a client of engaging in an array of improper actions including engaging in unsuitable trades. In this matter, the broker sold nearly all of the client’s dividend-paying Colgate-Palmolive stock. After waiting a short period of time, the broker repurchased the same stock effecting a short-term, round-trip purchase and sale.

Under the suitability standard, a financial professional must reasonably believe that his or her financial or investment recommendations are suitable for the client’s financial goals and circumstances. In practice, the suitability standard frequently focuses on whether transaction costs or trades are excessive and merely churning the account to generate commissions. However, under the suitability standard a particular transaction does not need to be consistent with all aspects of the investor’s objectives and profile nor does the product have to be the “best” recommendation, however, the planner must hold a reasonable basis for the suitability of the transaction.

Here, there was no reasonable basis for this suitability of this transaction. In fact, the customer claimed that she explicitly instructed the broker to retain the stocks because she viewed it as an important and reliable source of dividends. Dima’s pattern of selling and then repurchasing these stocks was not suitable in light of the customer’s stated goals. Rather the transactions generated, on average, 6 percent in mark-ups/mark-downs in connection with each short-term, round-trip stock transaction totaling approximately $372,000. In addition, the client paid a $49 ticket charge for each trade resulting in $4,000 in ticket charges on the company’s stock trades. FINRA found that these trades were unsuitable and in violation of provisions prohibiting excessive mark-ups and mark-downs.

Client Alleged Transactions Were Unauthorized

The client also accused Dima of engaging in unauthorized trades and lying to cover-up the unauthorized trades. Further, the client accused the broker of charging hundreds of thousands of dollars in fees to conduct the unauthorized trades. In all, the broker was accused of engaging in approximately 41 unauthorized trades. Included among these trades were 11 transactions through which nearly all of the elderly client’s Colgate-Palmolive stock

The stock was sold despite the client allegedly instructing Dima to not sell the shares because she viewed it as a reliable, long-term source of dividends. In reality, Dima sold off the shares in the company and, according to the customer’s complaint, engaged in a series of omissions and misrepresentations in an attempt to conceal the transactions. The customer alleged that Dima claimed that the sales were not intentional and were the product of a computer glitch. The customer also stated that Dima to fix the “error,” he would need to repurchase the shares represented that the firm would reimburse the fees. The fees were not reimbursed. Through this conduct, FINRA found that broker willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010.

To settle this matter, Dima agreed to the entry of FINRA’s findings including being permanently barred from acting as a broker. The broker did not admit or deny the charges.

Work with a Strategic Baltimore Business Attorney

If you or your firm are facing serious allegations regarding unsuitable or unauthorized financial transactions, contact the Maryland FINRA litigation lawyers at the Heyman Law Firm. To schedule a confidential consultation at our Baltimore law office, call (410) 305-9287.