Concorde Investment Services and its Chief Compliance Officer Kimberlee Elizabeth Levy of Livonia Michigan have been sanctioned by Financial industry Regulatory Authority (FINRA) based upon findings that they failed to supervise a stockbroker who enabled a disqualified stockbroker to effect trades in the accounts of Concorde customers. Letter of Acceptance Waiver and Consent No. 2018060577602 (June 26, 2020).
According to the AWC, stockbroker “JT,” who we know is Jill Marie Tramontano of Spring Lake New Jersey had been hired by Concorde prior to her stockbroker husband “RC” who we also know is Richard Grant Cody of Spring Lake New Jersey.
By way of background, on November 9, 2018, Richaqrd Cody pleaded guilty to one count of investment adviser fraud; conduct violative of 15 U.S.C. § 80b-6 and 80b-17. United States v. Richard G. Cody Case No. 1:17-cr-10291-FDS. Cody lied to customers about the security of their retirement savings and had provided customers with bogus account statements to hide the fact that their savings had been nearly depleted. The stockbroker has also been barred by SEC from being a stockbroker or investment adviser representative according to an Order which makes reference to Cody pleading guilty to defrauding investors and which reveals that he lied to SEC. In the Matter of Richard G. Cody Administrative Proceeding File No. 3-19113 (Mar. 19, 2019).
His wife, Jill Marie Tramontano had been barred from associating with any FINRA member in any capacity supported by findings of a certain stockbroker RC who was under FINRA suspension being permitted by Cody to engage in securities business. Letter of Acceptance Waiver and Consent No. 2016051816301 (Feb. 23, 2017)
According to the AWC involving Concorde, its Chief Compliance Officer Kimberlee Elizabeth Levy being suspended for one year from associating from any FINRA member in any capacity. The AWC stated that RC had been sanctioned by the regulator for making unsuitable investment recommendations to customers concerning complex products and for providing customers with unapproved and misleading account summaries. Letter of Acceptance Waiver and Consent No. 2018060577602 (June 26, 2020).
The AWC stated that JT’s trading at Concorde was problematic and had raised questions about her incompetence with the book of business that RC held at the securities broker dealer. Levy was instructed to follow up on these concerns by reviewing JT’s trading to see if it was JT or RC who was effecting trades in customer accounts.
Levy conducted an inspection of the Concorde branch that JT worked in but had not asked for compliance personnel to review JT’s trading in light of RC’s suspension. Customers were never contacted by Concorde to verify who was servicing their accounts – JT or RC. FINRA stated that RC’s business with customers would have been discoverable had compliance personnel reviewed the branch’s communications.
FINRA stated that RC engaged in securities business while under suspension with JT’s help. The regulator stated that customers were advised by RC and that transactions were made by RC on customers’ behalf.
The AWC stated that RC became associated with Concorde following his suspension though he was not reasonably supervised by Concorde and Levy. He was never placed on heightened supervision or otherwise subject to more scrutiny because of his transgressions. The regulator also indicated that RC’s recommendations which included fixed-to-floating rate securities and private placements had not been monitored by Concorde with a view towards ensuring suitability. FINRA indicated that customers were offered high risk and speculative private placements by him. Those among RC’s customers who received private placement recommendations included an eighty-five-year-old customer with a moderate risk tolerance who sustained losses.
Between April of 2014 and July of 2016, multiple customers were advised by RC to buy fixed-to-floating rate securities. Concorde was supposed to oversee these transactions but did not discover that he was selling the non-traditional structured products. This resulted in the suitability of RC’s advice being overlooked. Five customers of RC sustained about $148,000.00 in losses because of RC’s fixed-to-floating rate securities recommendations.
FINRA found that Concorde and Levy had violated FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Rule 3010. The securities broker dealer was fined $300,000.00. Levy was fined $10,000.00 and suspended from being a principal for four months.
The irony is that despite these regulatory findings, in connection with FINRA Arbitration Claim 17-02035, Concorde was found not liable for the failure to supervise Cody and his wife. On March 24, 2020, the United States Court of Appeals for the First Circuit, on appeal from the United States District Court for the District of Massachusetts, affirmed the judgment of the district court confirming a Financial Industry Regulatory Authority arbitration award and denying claims against Concorde Investment Services, LLC, holding that the arbitrator’s did not engage in a manifest distregard of the law, and that their conclusion was reasonable in light of the claims made and the evidence presented.