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Caldwell International Securities Broker Suspended for Unsuitable and Excessive Trading

Richard Lee, former registered representative with Caldwell International Securities Corp., submitted an Offer of Settlement to the Financial Industry Regulatory Authority (FINRA) in which he was suspended for 18 months and required to requalify by exam before reentering the securities industry in any capacity.  Richard Lee, of West Nyack New York, was found by FINRA to have recommended an unsuitable active trading strategy to his customers without understanding the risks involved, whether or not the strategy was suitable for his clients, or the impact the staggering commissions and fees generated by his recommended strategy would have on his customers’ accounts.

According to FINRA, Richard Lee generated new customers by cold calling them and generally targeted customers who would agree to speculation as their investment objective.  FINRA noted that Mr. Lee allegedly believed that once a customer selected “speculation,” that any investment strategy or trade was suitable.  Moreover, FINRA states that the funds in customers’ accounts were considered “gambling money” that the customer could afford to lose.  FINRA found that when customers did complain, Mr. Lee allegedly failed to report the complaints, but rather tried to hide his behavior by reducing sales charges.  For instance, FINRA stated that when one of Mr. Lee’s customers sent him an email telling him to stop trading and “I am very disappointed in you.   You have abused my trust,” Mr. Lee agreed to stop charging the customer commissions until the account was even. 

Mr. Lee allegedly failed to conduct any due diligence into the active trading strategy he was recommending to his customers and routinely recommended the strategy despite the fact that he never reviewed his customers’ accounts to determine if the strategy was successful or suitable for his customers.  In light of his financial status, no fine was imposed, but Mr. Lee was suspended by FINRA for 18 months.  The suspension is in effect from October 17, 2016 through April 16, 2018.

Excessive trading or “churning” involves excessive trading by a broker in a client’s account mainly to generate commissions.  Churning is a violation of Federal and state securities statutes, industry rules and regulations and a breach of fiduciary duty to investors under common law.  Churning can occur if a stockbroker exercises control over the investment decisions in your account and purchases stocks or recommends that you purchase and sell stocks for his/her benefit, i.e., commissions, not yours!  These trades rarely, if ever, make the investor any money.  In fact, the additional commissions raise the break-even point for the investor to the level where the stock must perform at an extremely high level in order for the investor to make any money.  Although there is no quantitative measure for churning, frequent buying and selling of securities that does little to meet a client’s investment objectives may be construed as evidence of churning.  Churning may result in substantial losses in a client’s account, and even if profitable, may generate a tax liability for a client.

In every broker-investor relationship, the broker must assess what the investor’s goals are as well as his or her risk tolerance.  This assessment is based on a number of key factors, including the investor’s stated objectives, risk tolerance, financial condition and tax status.  It is the broker’s responsibility to only pursue investments suitable for that investor based on these factors.  A stockbroker is obligated to only recommend suitable investments and investment strategies.  If a Caldwell International Securities stockbroker recommends unsuitable investments and unsuitable trading strategies, it can leave you vulnerable to unnecessary risk and losses.

Stockbrokers have been known to engage in many types of practices that may be in violation of industry and firm rules, practices, and procedures.  In order to protect investors from stockbroker misconduct, FINRA rules require brokerage firms to establish and implement a reasonable supervisory system.  The implementation of the rules require supervisors to monitor employees to ensure they comply with federal and state securities laws, securities industry rules and regulations, and 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 liable to investors for damages flowing from the misconduct. Therefore, investors who have suffered losses stemming from excessive trading (churning), unsuitable recommendations and/or other stockbroker misconduct by their broker can bring forth claims to recover damages against broker-dealers, like Caldwell International Securities, which should consistently oversee its brokers’ activities in order to prevent the above-described prohibited conduct.

Have you suffered losses in your Caldwell International account due to your stockbroker’s unsuitable excessive trading recommendation?  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 Caldwell International Securities stockbrokers who may have engaged in unsuitable excessive trading strategies 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.