Bernard G. McGee, of Cazenovia, New York, a stockbroker with Cadaret, Grant & Co., Inc. was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity per a National Adjudicatory Council Decision containing findings that McGee engaged in fraud, unsuitable recommendations, and unauthorized outside business activities. Department of Enforcement v. Bernard G. McGee, No. 2012034389202 (July 18, 2016).
According to the Decision, McGee was the financial representative of customer, CF, since 2007 – a time period that McGee was registered with New England Securities. Upon McGee switching employment to Cadaret, Grant & Co., CF reportedly transferred her accounts to McGee’s new firm. The Decision stated that from October 2007 through June 2010, CF purchased four variable annuities through Hartford and Pacific Life, pursuant to McGee’s recommendations. McGee was seemingly assigned to $584,000.00 of CF’s estimated $842,000.00 in assets.
The Decision specified that in 2008 through 2009, McGee established a relationship with James Griffin, founder of insurance company, 54Freedom. Apparently, McGee and Griffin entered into joint venture in 2010, where McGee would sell securities products, and Griffin would sell 54Freedom’s insurance products. Subsequently, in 2010 through 2011, McGee purportedly positioned charitable gift annuities to CF, who then surrendered her existing annuities in order to purchase the charitable gift annuities.
As noted in the Decision, McGee was found to have engaged in fraud concerning CF’s charitable gift annuity purchases. Specifically, McGee did not inform CF regarding the $50,000.00 in compensation that 54Freedom would pay him upon CF’s purchase of the annuities until after CF already terminated her existing annuity policies with Hartford and Pacific Life. FINRA also claimed that the $50,000.00 in compensation that McGee was due to receive upon CF’s charitable annuity purchases potentially influenced his conduct, and prompted the requirement of such disclosure to CF.
Upon investigation by FINRA, McGee apparently denied making recommendations to CF to purchase the annuities, and stated that he merely positioned Griffin to CF as someone who would speak with CF further about charitable giving options. McGee alleged that he was not promised commissions, nor in any agreement with 54Freedom to receive compensation in regard to CF’s annuity purchases.
FINRA determined that McGee’s explanation regarding the circumstances surrounding CF’s purchases was not credible. FINRA indicated that McGee’s intent was to not to deal in a good faith manner with CF, but rather, to urge CF to purchase annuities in order to produce financial gain for McGee. FINRA found that McGee acted willfully in violating Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and FINRA Rules 2010 and 2020.
The Decision further stated that McGee’s recommendation for CF to purchase the annuities was unsuitable. Particularly, FINRA claimed that the transaction was not appropriate for CF when considering her (lack of) financial knowledge, objectives, net worth, and the significant penalties associated with terminating her existing annuity products in order to purchase the charitable gift annuities. Notwithstanding seventy-one-year-old CF’s goals of long term growth and a moderate risk tolerance, and dependence on her retirement savings for purposes of sustaining an income for her life, McGee recommended that CF put nearly sixty percent of her assets with one company (that turned out to be a fraudulent enterprise).
FINRA further noted that McGee did not have an adequate basis to make recommendations because of his lack of due diligence concerning the suitability of the product. Although McGee apparently reviewed 54Freedom’s website and visited with 54Freedom’s personnel, he had little knowledge about charitable gift annuities, nor did he have sufficient knowledge concerning 54Freeom’s financial condition or general operations. FINRA found that McGee’s unsuitable recommendations were violative of FINRA Rule 2010, NASD Rules 2310, and IM 2310-2.
The Decision additionally stated that McGee engaged in unauthorized outside business activities in connection with his conduct with 54Freedom. Particularly, McGee did not inform Cadaret Grant about his business dealings with 54Freedom until August 2012. FINRA found that McGee rented office space from 54Freedom, formed a joint venture, and raked in compensation pursuant to the sales of charitable gift annuities to CF. FNRA found that these acts were not within the scope of his employment with Cadaret Grant. As such, FINRA found McGee’s unauthorized outside business activities to be violative of FINRA Rules 2010 and 3270.
Public disclosure records reveal that McGee has been subject to nine disclosure incidents, seven of which constitute customer disputes. On March 15, 2004, McGee settled a customer dispute for $7,500.00 amid allegations of unsuitable recommendations. On August 6, 2012, McGee settled a customer dispute for $269,375.15 in reference to CF’s transactions. McGee was terminated from Cadaret, Grant & Co., Inc. on October 12, 2012, amid allegations of his failure to disclose his outside business activities.
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