The Financial Industry Regulatory Authority suspended an ex-LPL Financial broker from association with any FINRA member in any and all capacities for six months for violating FINRA rules by submitting applications for risky real estate investment trusts that inflated the net worth of his elderly clients, according to FINRA.
Without admitting or denying the findings, Donald S. Woods signed a letter of acceptance, waiver and consent April 14 in which he agreed to the suspension and a $10,000 fine. FINRA accepted the letter Wednesday.
LPL did not immediately respond to a request for comment Thursday. Woods became registered as a general securities representative through an association with the firm in July 2010 and remained associated with LPL until it terminated his registration via Form U5, filed Jan. 20, 2017, according to FINRA. The Form U5 stated the reason was a “[b]usiness dispute” with his branch office, FINRA said, quoting LPL.
Woods is not currently registered as a broker or an RIA, according to his profile on FINRA’s BrokerCheck website. There are 12 disclosures cited over the course of his 31-year career, the most recent being a pending customer dispute dated Oct. 1, 2019, in which the claimants requested $140,000 damages, alleging they “desired to purchase low-risk investments, but were encouraged to invest in risky business development companies and REITs through ongoing misrepresentations, which caused them monetary losses.”
The claimants also said LPL “failed to adequately supervise” their representatives. The vast majority of the other disclosures involved claims of unsuitable investments made by Woods on behalf of his clients.
On or about June 11, 2014, Woods submitted an application on behalf of an elderly customer (“Customer A”) to invest $54,000 in a REIT, according to the FINRA AWC letter. LPL’s internal guidelines restricted Customer A’s holdings in alternative investments, such as REITs, to 10% of her liquid net worth, FINRA noted. “To evade this restriction, Woods submitted an application that stated that Customer A’s liquid net worth was $746,000 when, as Woods knew, her liquid net worth was approximately $400,000,” the letter said.
Then, on or about May 21, 2015, Woods submitted applications on behalf of a retired husband and wife (“Customers B and C”) to buy shares in four REITs totaling $200,000, according to FINRA. Those forms stated that Customers B and C had a combined liquid net worth of about $700,000, the letter noted, adding LPL’s guidelines restricted Customer B and C’s holdings in alternative investments, including REITs, to 25% of their liquid net worth. “To circumvent this restriction, Woods submitted revised applications on or around June 4, 2015 that stated that Customer B and C’s liquid net worth was $900,000 when, as Woods knew,” it was $200,000 less than that, the letter said.
Based on his actions, Woods violated FINRA Rules 2010 (governing standards of commercial honor and principles of trade), 2111 (governing the suitability of securities transactions and investment strategies) and 4511 (governing general requirements for books and records), according to FINRA.
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