Robert G. Stein, of Worcester, Massachusetts, a stockbroker with Capital Securities Management, was fined $5,000.00 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity after consenting to findings that he made unsuitable recommendations and prompted unsuitable sales of reverse convertible notes. Letter of Acceptance, Waiver and Consent, No. 2011025548802 (Feb. 25, 2016).
According to the AWC, from January 1, 2008 through August 31, 2011, eight of Stein’s customers collectively allocated $4,000,000.00 towards purchases of twenty-four reverse convertible notes. Stein’s recommendations and the customers’ resulting purchases were deemed by FINRA to be unsuitable.
Reverse convertible notes, according to the AWC, are complicated investments that carry illiquidity and principal risk in addition to the typical inflation and default risks associated with fixed income products.
The AWC stated that nearly all of the customers that Stein recommended the products to were over sixty years of age and did not have risk tolerances and investment objectives that exceeded the conservative-moderate level. As a result of Stein’s recommendations, the customers had substantially concentrated their accounts in the reverse convertible notes, using the strong majority of their net worth(s) in the process.
Considering the customers’ investment objectives, net worth, ages, and risk tolerances – Stein’s recommendations were reportedly unsuitable. As such, FINRA determined that Stein committed violations of FINRA Rule 2010, as well as NASD Conduct Rules 2110 and 2310.
Public disclosure records via FINRA’s BrokerCheck reveal that Stein has been subject to six disclosure incidents. On August 1, 1994, Stein was named in a customer dispute which settled for $50,000.00 after the customer alleged statutory and common law securities violations concerning Stein’s stock trading. On January 3, 2011, Stein settled a customer dispute for $102,000.00 amid allegations of unsuitable investments that led to losses in the customer’s account. On June 22, 2012, Stein settled another customer dispute for $30,000.00 after a client alleged unsuitable investments were purchased.
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