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October 20, 2016 at 10:53 AM
[Editor's note: This story has been updated to reflect the final decisions tied to regulatory actions against two broker-dealers and their advisors after the full reviews and related processes were completed.]
Massachusetts regulators on Thursday brought administrative charges against two advisors for “deceptive and unethical conduct in the handling of the accounts of older investors.”
Secretary of the Commonwealth William F. Galvin, said in a statement, “In June of 2016, my Securities Division did a sweep of [241] state-registered broker-dealers with an above-average percentage of agents hired with disciplinary history. While the results of the sweep are still being studied by my office, these two firms were included in that sweep.”
The BD sweep followed steps taken by Sen. Elizabeth Warren, D-Mass., and other politicians earlier this year to prod the Financial Industry Regulatory Authority to rein in broker misconduct.
Warren cited a February National Bureau of Economic Research working paper analyzing data from BrokerCheck, which found that about 12% of advisors have been accused of bad behavior and 7.7% have settled a claim or have been fined between 2005 and 2015.
The study also found that only about half of advisors who committed misconduct lost their jobs, with 44% of those obtaining a job at another advisory firm within a year.
“In each case, the agents had numerous misconduct reports on their records. These agents went on to abuse the accounts of senior investors,” Galvin explained.
“Both broker-dealers knew or should have known that these agents raised risks to their clients, and if they were going to take them on they had the ethical duty and obligation to place them on special heightened supervision,” he added.
Senior Fraud
The case against Dean J. Kajouras of New Jersey involved a second registered rep, who was not named in the charges and now is deceased. In 2009, the unnamed agent cold-called a retired Massachusetts resident who had a history of conservative investing.
Despite this investor profile, the broker-dealer opened an account of $222,000 for the investor with the stated objective being “speculation” and a risk tolerance of “very aggressive.” Later that year, the investor moved some $162,000 to the BD.
Over a seven-month period, the agent “churned both accounts” and received close to $116,000 in commissions and over $9,000 in fees and other charges, Galvin’s office says.
The agent left the BD and the direct supervisor took over the accounts. In 2011, this individual “unsuitably over-concentrated” the investor’s accounts by putting some 70% of their market value — into an energy exploration company in Oklahoma that went bankrupt, according to the charges.
