The Financial Industry Regulatory Authority (FINRA) has filed a complaint against Karen Lee Chafe, a Berthel, Fisher & Co. Financial Services, Inc. (Berthel Fisher) representative in its Melbourne Beach, Florida offices of altering at least 61 variable annuity withdrawal forms and IRA distribution/withdrawal request forms for over 14 customers. According to FINRA, Ms. Chafe obscured information, added new information to the forms, and then submitted the forms as new forms being filed for customers at her brokerage firm. The recycled distribution/withdrawal request forms were altered in various ways and were not re-signed by any of the customers. Ms. Chafe allegedly admitted to FINRA staff members her misconduct. FINRA claims the altered forms caused Berthel Fisher and the annuity company to maintain inaccurate books and records. Ms. Chafe has been charged with multiple violations of NASD Conduct Rule 2110 and FINRA Rule 2010.
Berthel Fisher is headquartered in Marion, Iowa. It is one of the smaller independent broker-dealers whose business model is akin to a franchise operation. Berthel Fisher reportedly has over 400 registered representatives across the United States operating in one or two person offices. Its branch offices are largely comprised of small producers earning commissions at higher pay out rates than the major full-service brokerage firms, a recipe for disaster when it comes to protecting investors’ rights.
While Ms. Chafe’s alleged conduct may seem innocuous and for the benefit of customers, it is the type of misconduct that cannot be tolerated in the securities industry. It is symptomatic of a lax supervisory system which will only give rise to greater harm if allowed to occur. Broker-dealers must establish and implement a reasonable and adequate supervisory system to protect clients from abuses. Alterations of simple forms beget alterations of checks and wire transfer instructions. Lax supervision in any office will not go unnoticed by the employees who wish to take advantage of clients. If broker-dealers do not establish and/or implement a reasonable supervisory system, they may be liable to investors for damages. It appears that Berthel Fisher did not establish and implement a reasonable and adequate supervisory system to monitor its representatives in this case. An investor who has suffered damages can bring forth claims to recover losses against his or her brokerage firm resulting from its failure to supervise its employees.
Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors’ rights and interests as their lowest priority. The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor’s compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these Independent broker-dealers.
Have you suffered losses in your Berthel Fisher brokerage account? Was your account handled by Karen Chafe? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against Berthel Fisher stockbrokers who engaged in stock brokerage misconduct and caused investors losses.
The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at firstname.lastname@example.org for answers to any of your questions about this blog post and/or any related matter.