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1st Discount Brokerage Fined by FINRA for ETF Supervisory Failures

1st Discount Brokerage, Inc., of Lake Worth, Florida, submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) for failing to supervise the sales of non-traditional exchange-traded funds (ETFs).  1st Discount Brokerage was subject to similar FINRA disciplinary actions in 2012 and 2015 for the firm’s failure to supervise a registered representative who operated a Ponzi scheme and for failure to supervise its compliance with Section 5 of the Securities Act of 1933, respectively.

Registered with FINRA since 1995, 1st Discount Brokerage currently has approximately 27 registered representatives and 20 branch offices.  FINRA found that 1st Discount Brokerage failed to establish, maintain, and enforce a supervisory system regarding non-traditional ETFs.  Further, FINRA found that 1st Discount Brokerage failed to provide its registered representatives with adequate training and guidance on suitability considerations for these complex, speculative investment products. 

According to FINRA, 1st Discount Brokerage allegedly allowed representatives to recommend non-traditional ETFs without performing adequate due diligence in order to understand the risks and features involved.  This lack of training and due diligence resulted in certain customers being recommended ETF investments which were unsuitable given their investment goals.  For example, FINRA stated that a 72 year old 1st Discount Brokerage customer with conservative investment objectives held a solicited non-traditional ETF for 509 days and incurred a loss of more than $5,088.64.  Another 1st Discount Brokerage customer with conservative investment goals held a solicited non-traditional ETF for 363 days, resulting in a loss of $1,727.94.  Without admitting or denying the FINRA findings, 1st Discount Brokerage was censured, fined $50,000 and required to pay $39,060.18, plus interest, in restitution to customers.

FINRA rules require brokerage firms to establish and implement a 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 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 1st Discount Brokerage, which have a duty to supervise employees in order to protect their customers’ interests.

Have you suffered losses in your 1st Discount Brokerage account due to an unsuitable ETF investment?  Did your stockbroker make an unsuitable recommendation that doesn’t fit with your investment goals?  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 1st Discount Brokerage 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.