Daniel Gordon Maughan of Los Angeles California a stockbroker registered with Financial West Group has been charged in a Complaint brought by Financial Industry Regulatory Authority (FINRA) Department of Enforcement alleging that (1) Maughan churned a customer’s investment account and (2) Maughan made unsuitable trades while he was employed by Financial West Group. Department of Enforcement v. Daniel G. Maughan Disciplinary Proceeding No. 2017054755206 (Aug. 14, 2019).
According to the Complaint, between October of 2010 and January of 2015, one thousand six hundred forty-eight trades with a principal value of $70,000,000.00 in sales in purchases had been executed by Maughan in a trust account owned by a customer of Financial West Group. The Complaint alleged that Maughan exercised control over the customer’s account, and seldomly discussed specific transactions with the customer. Allegedly, the customer did not have an understanding, or the experience, for the types of trades Maughan placed. FINRA indicated that the customer lacked an understanding about the speculative nature of options trading, and the risks inherent in Maughan’s strategy.
For example, Maughan allegedly effected transactions including long calls of Chicago Bridge and Iron Company and NQ Mobile which expired worthless causing the customer losses. FINRA also claimed that Maughan executed inverse and leveraged exchange trades funds, including ProShares UltraShort 20+ Year Treasury ETF, ProShares Ultra S&P 500 ETF; Direxion Daily S&P 500 Bear 3x Shares; and Barclay’s iPath S&P 500 VIX Short Term Futures Exchange Traded Note. Those investments were allegedly held in the customer’s account for extended periods. The Complaint stated that Maughan failed to discuss the volatility or risks of those investments.
According to the Complaint, the customer would have needed to generate more than twenty-one percent in annual returns in order to break even given the high volume of trading. The Complaint alleged that excessive trades and churning of the customer’s account demonstrated quantitative unsuitability. FINRA indicated that about $812,000.00 in losses were incurred by the customer, who had to pay $841,000.00 in costs and commissions because of Maughan’s excessive trading and churning. FINRA Department of Enforcement alleged that Maughan’s conduct in this regard was violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange Commission (SEC) Rule 10b-5 and FINRA Rules 2010, 2111 and 2020.
The Complaint also alleged that qualitatively unsuitable trades had been recommended by Maughan between October of 2010 and January of 2015. The purportedly bad trades allegedly concerned exchange traded notes, exchange traded funds and options products. FINRA Department of Enforcement alleged that Maughan’s bad trading in this respect was violative of FINRA Rules 2010, 2360, 2111 and National Association of Securities Dealers (NASD) Rule 2310.
FINRA Public Disclosure reveals that Maughan has been identified in four customer initiated investment related disputes pertaining to accusations of his violative conduct while employed with Merrill Lynch, Wedbush Morgan Securities and Financial West Group. For example, a customer initiated investment related civil action involving Maughan’s conduct was settled for $46,000.00 in damages founded on allegations of unsuitability, unauthorized trading, and churning of the customer’s investment account when Maughan was associated with Merrill Lynch.
Another customer initiated investment related arbitration claim concerning Maughan’s activities was resolved for $550,000.00 in damages based upon accusations that false or misleading statements had been made to the customer; contractual obligations were violated; the customer’s account had been handled with poor care; and fiduciary duties were breached in regard to the penny stock, options and over-the-counter equities trades executed in the customer’s account when Maughan was associated with Financial West Group. FINRA Arbitration No. 15-02211 (Mar. 29, 2017).
