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California Broker Barred for Unsuitable Mutual Fund Switching

Leonard Goldberg of Rancho Mirage, California submitted an offer of settlement to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for an alleged mutual fund “switching” scheme. In June 1986, the NYSE fined Mr. Goldberg $25,000 and suspended him for misconduct similar to these FINRA allegations. Mr. Goldberg acted as a GSR, GSP and OP for FINRA member firm Newport Coast Securities Inc. (Newport) from October 22, 2010 through his termination in November 2014 for failing to follow procedures.

FINRA investigators found that from August 2007 through August 2014, while associated with Newport and J.P. Turner & Company, LLP, Mr. Goldberg caused over $123,600 in losses to five customers in connection with 300 mutual fund and Exchange Traded Fund (ETF) transactions that netted him $77,900 in ill-gotten gains. FINRA alleged that over the five year period, Mr. Goldberg engaged in a practice of fraudulent and unsuitable short term switches of Class A mutual funds in client accounts.

Mutual Fund “switching” is a sales practice violation in which a broker switches a client’s investment from one fund to another without any reasonable basis. Some brokers effect numerous switches in client accounts in order to generate commissions. In the case of Mr. Goldberg, FINRA alleged that he fraudulently moved Class A mutual fund positions between client accounts more than 90 times without their knowledge. In addition, he allegedly falsified firm documents to continue his scheme. FINRA alleged that the “switches” were unsuitable given his clients’ age, investment objectives, income and experience.

By engaging in this practice of defrauding five customers by continuously switching their Class A mutual fund investments in order to generate commissions for himself, FINRA found that Mr. Goldberg willfully violated Section 10(b) Securities Exchange Act, Rule 10b-5(a) and (c), as well as Section 17(a)(1) of the Securities Act, FINRA Rules 2020 and 2010, and NASD Rules 2120 and 2110.

Without admitting or denying the allegations within the FINRA complaint, Mr. Goldberg submitted an offer of settlement in which he was barred from association with any FINRA member in any capacity.

FINRA rules require brokerage firms to establish and implement a reasonable supervisory system to protect customers from the risks associated with investing. The implementation of the rules requires supervisors to monitor their employees to ensure compliance with federal and state securities laws, securities industry rules and regulations, as well as the brokerage firm’s own policies and procedures. If broker-dealers and their supervisors fail to establish and implement these protective measures, they may be held liable to account holders for investment losses which stem from their employees’ misconduct. Therefore, investors who have suffered losses due to a brokerage firm’s failure to supervise the unsuitable recommendations of its representatives can bring forth claims to recover damages against firms, like Newport and J.P. Turner & Company, which have a duty to supervise employees in order to protect their customers’ interests.

Have you suffered losses in your Newport and/or J.P. Turner & Company account due to excessive mutual fund “switching?” If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Newport and/or J.P. Turner & Company stockbrokers who may have engaged in 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 35 years, 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 pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.