Broker-Dealer Settles FINRA Charges on Unsuitable Recommendations

A broker-dealer settled FINRA charges for failing to supervise two of its registered representatives that made unsuitable investment recommendations.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that two registered representatives of the firm recommended that multiple customers concentrate a significant portion of their capital in energy-sector securities during the period from 2013 to 2016. The representatives made additional recommendations in energy-focused investments even after the customers' accounts were highly concentrated in energy securities. FINRA said that this resulted in the customers' accounts being subject to a high risk of loss in the event of a sudden shift in oil or gas prices, and harm caused to customers.

Additionally, FINRA found that the firm failed to respond to the red flags raised by the broker-dealer's internal systems, and did not conduct any further review into the recommendations. As a result, the broker-dealer failed to take steps to prevent the representatives from making the unsuitable recommendations.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $100,000 and (iii) restitution of $145,019 plus interest.