Christopher Mack Watkins of Farmington, Utah, the President of Watkins Financial Services Inc. (WFS), has been fined $15,000.00 and suspended for two months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Watkins charged unfair commissions to customers. Letter of Acceptance, Waiver, and Consent, No. 2021069366201 (March 28, 2024).
According to the AWC, FINRA’s regulatory action against Watkins stemmed from its 2021 examination of WFS. The investigation focused on commissions charged to customers by Watkins. FINRA noted that securities broker dealers must charge fair commissions considering factors like the expense of executing orders, market conditions, and the value of services. Factors such as the type of security, transaction size, its availability, price, and whether the securities broker dealer disclosed the transaction cost to the customer beforehand all determine fairness.
FINRA stated that from July of 2019 through December of 2022, Watkins failed to consider these factors when determining brokerage commissions for certain transactions. Instead, he generally aimed for commissions of approximately five percent of the transaction’s principal value, leading to unfair charges. Specifically, on 130 occasions, Watkins charged commissions that exceeded what was charged to other WFS customers for similar transactions. Moreover, on 46 of these instances, he imposed an average commission exceeding five percent for proceeds transactions, where securities are sold and the proceeds are used to purchase other securities around the same time.
Watkins’ actions were not justified by market conditions, execution costs, or the provision of special brokerage services. Watkins also determined commissions on purchases in proceeds transactions without accounting for the commissions on the corresponding sales, ultimately overcharging customers by $42,768.72.
Therefore, Watkins violated FINRA Rules 2121 and 2010. In addition to the suspension and fine, Watkins paid restitution of $42,768.72.
This is not the first time that Watkins has been the subject of a regulatory action concerning his conduct in the securities industry. Watkins has been fined and censured by Utah Division of Securities because Watkins managed funds from investment adviser customers which were pooled in a proprietary security called Mack Partners Ltd. Case No. SD-00-0048 (September 6, 2000).
Watkins was compensated based on the performance of the fund. The entity he controlled, called Mack Associates LLC, was compensated for investment advisory services provided to Mack Partners. Mack Associates LLC was not a registered investment adviser. Also, Watkins was not licensed as an issuer agent. He or Mack Associates LLC ultimately received compensation based on performance-based fees in violation of Utah law.
FINRA Public Disclosure also shows that on October 21, 2014, a customer initiated investment related complaint involving Watkins’s conduct was settled for $107,223.00 in damages based upon allegations that Watkins made unsuitable recommendations in over-the-counter equities, stocks, and a promissory note in Latitude Restaurant Group that failed due to the securities violations of the founder and CEO. The executor of the estate of a deceased customer alleged that the promissory note investment was unsuitable for the investor’s age and that Watkins did not engage in reasonable due diligence. In addition, the executor alleged excessive trading in stocks, resulting in excessive commissions.
Watkins was associated with Watkins Financial Services Inc. in Farmington, Utah, from September 22, 2000, to December 31, 2023, as President and Chief Compliance Officer.
