Andre Krause of Woodbridge, New Jersey, a stockbroker registered with The Investment Center Inc., has been fined $10,000.00 and suspended for two months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Krause mismarked trades to falsely indicate they were unsolicited or placed by the customers on their own initative as opposed to the recommendation of Krause, causing the securities broker dealer to maintain inaccurate records. Letter of Acceptance, Waiver, and Consent, No. 2023080625001 (March 19, 2024).
FINRA Rule 2111 specifically provides that:
(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
However, with respect to “unsolicited transactions” where the customer purchases the security on their own intiative, there is no recommendation, and hence no violation of Rule 2111.
FINRA has consistently stated that “whether a security is recommended does not necessarily depend on the member’s classification of the security as ‘solicited or unsolicited.’” In particular, a transaction will be considered to be recommended when the member brings the specific security to the attention of the customer through any means, including, but not limited to direct telephone communication, the delivery of promotional material through the mail, or the transmission of electronic messages.” NASD Notice to Members 96-60 at 473-74 (September 1996).
In 2001, the NASD provided additional guidance as to what constitutes a “recommendation,” and stated the determination of whether a recommendation has been made is an objective, rather than a subjective inquiry. An important factor in this regard is whether – given its content, context, and manner of presentation – a particular communication from a broker dealer to a customer reasonably would be viewed as a ‘call to action.’” NASD Notice to Members 01-23 at 2 April 2001.
The New York Stock Exchange, in its interpretation of The New York Stock Exchange Rule 472(j)(1), relating to Recommendations, (as recently incorporated into the FINRA Code), states that:
For purposes of these standards, the term “recommendation” includes any advice, suggestion or other statement, written or oral, that is intended, or can reasonably be expected, to influence a customer to purchase, sell or hold a security.
NYSE Rule Interpretations Rule 472(j)(1)(CCH 2009).
Securities broker-dealers are also required to supervise exception reports showing the prevalence of “unsolicited” orders in any particular security by a broker or their customers, and in fact generally, sometimes send the customer a written letter confirming that the transaction was in fact “unsolicited,” and not the product of a recommendation of the stockbroker.
According to the AWC, between September 2020 and August 2021, Krause incorrectly marked 1,555 order tickets as unsolicited when, in fact, he had solicited the trades. He caused The Investment Center to create and keep inaccurate records for these transactions, violating the Securities Exchange Act of 1934 Section 17(a) and Rule 17a-3. The regulator found that Krause violated FINRA Rules 2010 and 4511.
Moreover, Krause’s failure to comply with the written supervisory procedures of The Investment Center, which require accurate recording of transaction solicitations, was a violation of FINRA Rule 2010.
Krause has been associated with The Investment Center Inc. in Woodbridge, New Jersey, since January 14, 2005. Additionally, Krause has been registered with IC Advisory Services Inc., in Bedminster and Woodbridge, New Jersey, since June 2, 2006.
