Kai Chen, of San Francisco, California, a stockbroker formerly registered with Credit Suisse Securities (USA) LLC, has been fined $10,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) in any capacity after consenting to findings that he exercised discretion in customer accounts without authorization. Letter of Acceptance, Waiver and Consent, No. 2013039280301 (Dec. 15, 2016).
According to the AWC, Chen was responsible for facilitating, on behalf of the firm’s wealthy customers from Asia and the United States, the purchase of syndicate shares, which were shares of initial public offerings. Apparently, Chen was required to receive confirmation from customers concerning interest in the syndicate shares and the allocation of such shares in the customers’ accounts.
The AWC reported that Chen merely arranged with customers, in an informal fashion, for him to document customers’ interests concerning the syndicate shares and for purchases and sales of securities to be effected by Chen in the customers’ accounts. Chen reportedly effected these purchases and sales in customers’ accounts despite not having obtained confirmation from the customers beforehand.
Particularly, between January 8, 2013 to June 28, 2013, one hundred and thirty-seven transactions in the syndicate shares were effected by Chen without him initially confirming the customers’ approval for such trades. The AWC revealed that ninety-nine of the syndicate share purchases were effected for eighteen of the customers’ accounts. The transactions reportedly pertained to thirty-eight separate initial public offerings.
Additionally, the AWC stated that between January 22, 2013 and June 28, 2013, thirty-eight sales of the syndicate shares had been effected by Chen in thirteen separate customer accounts, which pertained to eighteen of the initial public offerings. The AWC even stated that Chen and other registered representatives of the firm, on occasion, made purchases and sales in customer accounts on the same day – despite never having the customers’ authorization.
The AWC further stated that customers never provided requisite written authorization to Chen for him to exercise discretion in their accounts. Further, the firm apparently did not deem the customers’ accounts to be approved for purposes of discretionary trading. As such, FINRA found that Chen’s conduct was violative of FINRA Rule 2010 and NASD Rule 2510(b).
FINRA Public Disclosure reveals that Chen has been subject to three events concerning allegations of misconduct. Particularly, on February 27, 2008, a customer initiated investment related arbitration claim involving Chen’s conduct was settled for $2,500,000.00 in damages based upon allegations that Chen was responsible for the customer’s losses pertaining to the sale of an auction rate security.
Additionally, on June 26, 2008, a customer initiated investment related arbitration action involving Chen’s conduct was settled for $8,350,000.00 in damages based upon allegations that Chen effected an unauthorized transaction in auction rate securities which ultimately became illiquid and caused the customer to suffer losses.
On October 13, 2013, Chen’s registration with Credit Suisse Securities (USA) was terminated, based upon allegations that Chen neither confirmed customers’ indications of interest in syndicate shares, nor sales and allocations. Chen was later registered with SF Sentry Securities, Inc. from October 30, 2013 to July 2, 2015.
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