Alex Etter, of Englewood Cliffs, New Jersey, a stockbroker formerly registered with Caldwell International Securities, was fined $10,000.00, and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity per a FINRA Order Accepting Offer of Settlement containing findings that Etter effected unsuitable investment recommendations to customers. Department of Enforcement v. Alex Etter, No. 2014039091903 (Oct. 14, 2016). In connection with the Order, Etter was disgorged of $227,395.45 which had been improperly received by him from customers.
According to the Order, between June of 2012 and July of 2014, at which point Etter was associated with Caldwell International Security Group’s branch, ECG, he effected an unsuitable investment strategy for seven firm customers. Etter was seemingly responsible for the generation of the customer base through cold calling investors that were ready to invest speculatively. FINRA alleged that Etter made recommendations to the firm’s customers to pursue an active trading model, with purchases of securities being effected upon catalyst market events taking place in the short term. Apparently, several single securities were purchased and sold monthly through this strategy, and Etter derived his commissions only upon the effecting of securities transactions.
According to the Order, customers did not understand the risks associated with Etter’s investment trading strategy. Further, FINRA noted in the Order that Etter failed to comprehend the strategy which he recommended to customers, and additionally failed to comprehend the nature of turnover rates and cost/equity ratios. The Order stated that Etter did not even know what a cost/equity ratio meant. Moreover, FINRA stated that Etter did not make an effort to ascertain how the losses sustained by customers were attributed to the active trading strategy which had been recommended by Etter to customers.
The Order reported that customers commonly paid at least four percent commissions in connection with the purchases and sales of securities that were recommended within the active trading model. Etter seemingly failed to inform customers on occasions where commissions associated with the transactions outweighed the benefit of executing them. Etter also apparently failed to inform customers when such commissions could cause the customers to suffer from financial losses.
According to the Order, Etter was jointly responsible for seven of the customer accounts held within the branch. Affected customers dealt with cost/equity ratios that had ranged from approximately eighteen percent to more than eighty-one percent. The customers’ annual turnover rates purportedly ranged from nearly four up to approximately ten.
Apparently, Etter failed to understand the concept of suitability as it pertained to his customers. The Order stated that Etter routinely deemed his trades suitable for customers, so long as future transactions in customer accounts were able to make up for customers’ previous losses sustained as a result of his strategy.
Particularly, Etter was questioned by FINRA personnel regarding an investment recommendation made by Etter which involved the sale of a security three weeks after the customer’s purchase, resulting in the customer bearing $3,000.00 in losses and Etter earning $4,800.00 in commissions. When FINRA inquired into whether Etter’s aforementioned recommendation for the customer to sell at such time was suitable, Etter reportedly responded by indicating that such recommendation would be suitable assuming that the stock purchased subsequently in the customer’s account increased in value to such a point in which Etter would be able to make money for the customer.
Etter apparently never reported the complaints which were lodged by affected customers; he merely reduced customers’ sales charges in order to conceal his misconduct. FINRA noted in one case that customer YM complained regarding excessive commissions which were charged in his account, and poor performance. In this case, Etter seemingly made an offer to YM for sales charge commissions to be waived for YM’s subsequent ten trades, rather than Etter properly reporting the customer’s complaint.
In another case that FINRA noted in the Order, customer CV instructed a registered representative, Lee, to stop making trades, and accused Lee of abusing the customer’s trust. Etter’s response in this regard was to stop charging commissions on trades in CV’s account until which point CV was able to break even, rather than reporting CV’s complaint.
The Order further stated that Etter failed to conduct proper due diligence regarding the active investment strategy. Apparently, Etter made recommendations to his customers even though he never reviewed the accounts in order to determine if such strategy was suitable or ever successful for the customers. Etter reportedly failed to calculate cost/equity ratios, commission/equity ratios, or turnover rates in the customers’ accounts prior to a cycle examination conducted by FINRA in 2014.
FINRA found that Etter’s investment recommendations in the active investment strategy were unsuitable because he failed to consider the benefits and drawbacks faced by the customer, volatility, costs, and the strategy’s performance in a number of projected market scenarios. FINRA found that Etter’s conduct in this regard was violative of FINRA Rules 2010 and 2111.
FINRA Public Disclosure reveals that Etter has been subject to four incidents concerning misconduct. Particularly, on February 13, 2008, Etter was named in a customer initiated investment related arbitration action in which the customer requested $37,062.34 in damages based upon allegations that Etter was responsible for the customer’s poor performance, and that Etter did now follow the customer’s instructions to liquidate his investments.
On May 8, 2009, Etter was subject to another customer initiated investment related arbitration claim, in which the customer requested $45,000.00 in damages based upon allegations that Etter effected trades in the customer’s account despite not having requisite authorization. On November 4, 2013, Etter was subject to a customer initiated investment related arbitration claim, in which the customer requested $5,000.00 in damages based upon allegations that Etter engaged in front running, effected unauthorized purchases and sales of investments in the customer’s account, and provided the customer with poor investment advice.
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