Broker Settles FINRA Charges for Unsuitable Recommendations

A general securities representative settled FINRA charges for recommending complex structured notes to retail customers without having a reasonable basis to believe the investments were in their best interests.

According to the AWC, the representative recommended that two retail customers, including one senior, invest a substantial portion of their net worth into eighteen structured notes during the relevant period. FINRA determined that the representative failed to sufficiently consider the significant risks of these products—which lacked principal protection and had maturities of at least five years—in light of the customers' low risk tolerances, short-term liquidity needs, and lack of prior experience with complex investments. FINRA said that twelve of the eighteen notes stopped paying interest after the value of their reference assets declined below specified levels.

FINRA found the representative willfully violated the care obligation of Exchange Act Rule 15l-1(a)(1) and Rule 15l-1(a)(2)(ii) ("Regulation Best Interest") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To resolve the matter, the representative agreed to a six-week suspension from associating with any FINRA member in all capacities. Additionally, the representative was ordered to pay a $10,000 fine and provide restitution of commissions to the two affected customers totaling $7,530 plus interest.