Matthew D. Maberry, of Alton, Illinois, was fined $10,000.00, suspended from association with any Financial Industry Regulatory Authority (FINRA) member in any capacity, and ordered to pay restitution of $38,445 after consenting to findings that he failed to supervise non-traditional exchange traded funds and made unsuitable recommendations to customers. Letter of Acceptance, Waiver and Consent, No. 2013035045902 (Feb. 18, 2016).
The AWC indicated that from February 2009 through June 2013, Maberry worked in the capacity of the firm’s chief executive officer as well as chief compliance officer. According to the AWC, Maberry was charged with the responsibility of creating supervisory procedures for the firm. Maberry reportedly failed to create and implement these advisory protocols pertaining to sales generated by the firm’s stock brokers. The AWC stated that the only supervision provided pertained to a review of the firm’s trade blotter on a daily basis pertaining to the stockbrokers’ sales. The AWC indicated that the firm’s trade blotter; however, was not comprised of facts pertaining to the age, risk tolerance, investment objectives, and suitability information of customers. FINRA found that the firm had also failed to monitor the accounts of customers in order to detect any red flags, and had no procedure for exception reports to be utilized in the supervision of sales.
The AWC further stated that there was no supervision provided by the firm in reference to non-traditional exchange traded funds and other mutual funds. These types of securities are designed to return a multiple, inverse, or inverse-multiple of a benchmark index over one trading day. The AWC stated that FINRA, via Regulatory Notice 09-31, considered non-traditional exchange traded funds to be typically unsuitable for retail investors planning to hold the securities for more than one trading session. The firm reportedly sold the non-traditional exchange traded funds to many customers who held the securities for a greater period of time than one trading session.
According to the AWC, the firm failed to implement sales supervision pertaining to non-traditional exchange traded funds; failed to provide proper training to the stockbrokers regarding risk factors; failed to engage in any due diligence regarding the products; and failed in monitoring the holding periods. As Maberry was responsible for such processes, he was found by FINRA to have violated FINRA Rule 2010, MSRB Rule G-27, and NASD Rule 3010(a).
The AWC additionally indicated that from February 2009 through June 2013, customers were sold non-traditional exchange traded funds and mutual funds products via Maberry’s recommendations. FINRA found that since Mayberry failed to be cognizant of the risks concerning the products, he had no reasonable basis to support his recommendations. Mayberry reportedly lacked understanding as to how certain aspects of the products worked, such as compounding risk and the daily reset factors. FINRA found that Maberry made unsuitable recommendations in this regard.
Maberry also reportedly effected fifty purchases of non-traditional mutual fund Class A shares in fourteen of his firm’s customer accounts where FINRA claimed that such purchases were unsuitable. Maberry, according to FINRA, could have recommended Class B or C shares to investors to reduce the excessive fees for investors holding their positions for less than a year. Customers reportedly lost $38,445.00 in the aggregate as a result of Maberry’s unsuitable purchases. FINRA found that Maberry had violated FINRA Rule 2111 and Rule 2010, as well as NASD Rule 2310 as a result of his misconduct.
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