Broker Settles SEC Charges for Reg BI Violations

A broker settled SEC charges for making unsuitable recommendations to retail customers to purchase high-risk corporate bonds. 

According to the cease-and-desist Order, the broker recommended speculative, illiquid corporate bonds known as "L Bonds" to 10 customers without a reasonable basis to believe the investments were in their best interest. The SEC said that the bonds, sold through the broker's firm, carried a high risk of total loss and were unsuitable for many of the customers, most of whom were at or near retirement age.

The SEC determined that the broker completed suitability forms on behalf of customers, checking boxes indicating "high-risk tolerance" and extensive investment experience that did not accurately reflect their actual circumstances. The SEC said that the recommendations resulted in some customers concentrating between 16% and 72% of their liquid net worth in the firm’s L Bonds.

As a result, the SEC charged the broker with violating Exchange Act Rule 15l-1 ("Regulation Best Interest"). 

The broker consented to the SEC’s Order, which imposes: (i) a cease-and-desist from further violations; (ii) a censure; and (iii) payment of $50,140 in disgorgement, $12,501 in prejudgment interest, and a $50,000 civil penalty, payable in installments.