Leonard Allen Goldberg, of Palm Springs, California, a stockbroker with Newport Coast Securities, Inc., was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity per an Order Accepting Offer of Settlement containing findings that Goldberg engaged in unsuitable and fraudulent trading of funds in customer accounts. Department of Enforcement v. Goldberg, No. 2011026098504 (Apr. 11, 2016).
According to the Order, from August 2007 through August 2014, at a time when Goldberg was registered with both Newport Coast Securities, Inc., as well as J.P. Turner & Company, LLC, he engaged in over three hundred unauthorized discretionary trades on behalf of five customers concerning exchange traded funds and mutual funds.
The Order stated that from August 2007 through February 2012, Goldberg concocted a fraudulent scheme affecting the five customers regarding the short term switching of Class A mutual funds. He was found by FINRA to have caused five customers to bear losses totaling $123,600.00 in the aggregate, while Goldberg made $77,900.00 in commissions for his firms and himself.
The Order indicated Goldberg switched, in an unsuitable and fraudulent fashion, Class A mutual funds in the five customers’ accounts in excess of ninety times from August 2007 through February 2012, where such funds were only held for approximately five months prior to switching. Apparently, customers were not informed by Goldberg in advance of his trading in their accounts.
FINRA found that Goldberg’s agenda with his trading scheme was to benefit himself (to his customers’ expense) through the generation of commissions. The affected customers’ ages ranged from fifty-nine to seventy-three years old. Such customers had reportedly utilized and trusted Goldberg for purposes of investing their funds for retirement and holding investments in the longer term. Notwithstanding, Goldberg had consistently purchased and sold the Class A funds in a short-term fashion, which prompted customers to bear continuous charges and fees.
The Order further indicated that Goldberg did not factor in the affected customers’ suitability for investing in the funds, nor did he take into account the performance of selected investments. In several cases, Goldberg would sell positions in his customers’ accounts and later purchase the same investment in customers’ accounts months later.
In other cases, Goldberg reportedly would purchase a fund in one of the customer’s accounts, while during the same period, sell the exact fund in another customer’s account. Goldberg apparently also engaged in the switching of funds in customers’ accounts to other funds carrying like investment objectives.
FINRA found Goldberg’s trading scheme to have defrauded the aforementioned customers through the persistent short-term switching of investments in the Class A funds. As such, his actions were found to be willfully violative of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, in addition to Securities Act of 1933 Section 17(a)(1), NASD Rules 2110 and 2120, and FINRA Rules 2010 and 2020. FINRA also found that Goldberg’s unsuitable short-term switching scheme was violative of NASD Rules 2110, 2310, IM-2310-2, and FINRA Rules 2010 and 2111.
The Order further stated that Goldberg’s conduct of engaging in unauthorized discretion in customers’ accounts was associated with his fraudulent scheme. Neither Goldberg’s customers, nor his firm, provided Goldberg with the requisite written authorization concerning the three hundred transactions involving mutual funds and exchange traded funds. As such, FINRA found his unauthorized discretionary trading to be in violation of FINRA Rule 2010, and NASD Rules 2110 and 2510.
Even further, Goldberg was found to have caused his firm’s documents to be falsified in order to continue engaging in his fraudulent trading. Specifically, Goldberg’s firms received twenty mutual fund switch forms, and two-hundred and thirty-eight electronic orders where Goldberg claimed such transactions were not solicited, when they were found by FINRA to be solicited by Goldberg given his unauthorized discretionary trading.
Goldberg reportedly led his firm’s records and books to be inaccurate in this regard – an act which Goldberg apparently intended to avoid detection and further review from compliance personnel within the firms he was associated with. According to the Order, Goldberg even prompted signatures of his affected customers to be forged with respect to mutual fund switch documents and other client account forms. The Order indicated that Goldberg mislabeled information concerning his customers’ investment profile (net worth, risk tolerance, investment experience) in order to promote his fraudulent and unsuitable trading scheme.
Apparently, from January 2010 through November 2014, Goldberg went as far as requiring his sales assistants at Newport to input their own California addresses in the address sections for customers who actually lived in Massachusetts and Tennessee, as Goldberg had not ascertained the requisite securities licenses in such states. Goldberg, based on the causing of his firms’ documents to be falsified, was found to have violated FINRA Rules 2010, 4511, as well as NASD Rules 2110 and 3110.
Public disclosure records reveal that Goldberg has been subject to nine disclosure incidents. On August 3, 1982, he settled a customer dispute for $147,000.00 after a customer alleged unsuitable and unauthorized trading, as well as churning. On September 13, 1982, Goldberg settled a customer dispute for $18,500.00 after a customer alleged churning and Goldberg’s failure to liquidate the customer’s account in accordance with the customer’s instructions.
On June 26, 1986, the New York Stock Exchange (NYSE) fined Goldberg $25,000.00 and suspended him for one month from associating with an NYSE firm, in any capacity, in connection with findings that Goldberg engaged in unauthorized discretionary trading in a customer’s account. On December 30, 1994, Goldberg settled a customer dispute for $60,000.00 after a customer alleged breach of contract and negligence.
On May 15, 2002, Goldberg’s former clients lodged a customer complaint against Goldberg, requesting $20,000.00 after alleging unauthorized purchases in limited partnerships, forgery, and unsuitability. On May 9, 2012, Goldberg became subject to yet another customer dispute, in which a customer requested $125,000.00 in damages after alleging unsuitability, misrepresentation, unauthorized transactions, breach of fiduciary duty, and over-concentration of securities.
Newport Coast Securities, Inc. terminated Goldberg on November 12, 2014, amid allegations of Goldberg’s failure to follow the company’s procedures and policies. On August 28, 2015, Goldberg was named in the FINRA Complaint alleging the aforementioned violations subject to the Order Accepting Offer of Settlement, leading to Goldberg’s permanent bar.
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