Daniel Gordon Maughan (also known as Dan G. Maughan) of Los Angeles California a stockbroker formerly registered with Financial West Group has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity according to an Office of Hearing Officers Order Accepting Offer of Settlement that contained findings of Maughan having (1) churned and excessively traded a trust account owned by a Financial West Group customer and (2) effected trades that were in no way suitable for a customer given the customer’s objectives for investing and knowledge of risks. Department of Enforcement v. Daniel G. Maughan Disciplinary Proceeding No. 2017054755206 (Oct. 15, 2019).
According to the Order, between October of 2010 and January of 2015, about twelve investment accounts had been managed by Maughan at Financial West Group but the majority of compensation earned by the stockbroker came from a trust account under which customers RI and JAI were beneficiaries. In fact, a total of 1,648 trades had been executed by Maughan in that trust account between October of 2010 and January of 2015. FINRA stated that the trades were comprised of more than $70,000,000.00 in purchases and sales. Apparently, Maughan’s trading led the customer’s account to suffer from an annual cost-equity ratio of more than twenty-one, indicating that the customer needed to generate at least a twenty-one percent annual return in order to avoid taking a loss.
FINRA stated that it was quantitatively unsuitable for Maughan to have excessively traded and churned the customer’s investment account. His activities resulted in $841,000.00 in costs and commissions being incurred by the customer during the same time that the customer experienced $812,000.00 in realized and unrealized losses. Maughan sought to maximize financial gains at the expense of customers RI and JAI, and he disregarded their interests. FINRA Office of Hearing Officers found that Maughan’s churning of the Financial West Group customer’s trust account was violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5 and FINRA Rules 2010 and 2020. Also, Maughan’s excessive trading was found by FINRA to be violative of FINRA Rules 2010, 2111 and National Association of Securities Dealers (NASD) Rule 2310.
In addition, FINRA determined that Maughan’s trading of non-traditional exchange traded notes, non-traditional exchange traded funds, and options were in no way qualitatively suitable for the customer. Apparently, the customer’s trust account contained 324 options purchases ($1,300,000.00 in principal value) and 181 options sales ($1,500,000.00 in principal value) despite the customer lacking an understanding of options and having no experience trading those products. FINRA stated that Maughan lacked an adequate foundation to conclude that his trading was appropriate given that RI and JAI both had goals of capital preservation and income and they did not comprehend risks of the options trading strategy utilized by Maughan. His options trading, which generated $143,000.00 in commissions, resulted in $234,000.00 in losses.
The Order additionally stated that Maughan lacked an adequate foundation to believe that investments in VXX as well as leveraged exchange traded funds and inverse leveraged exchange traded funds were appropriate for RI and JAI given the volatile, speculative nature of those securities; the inappropriateness of holding those products for longer than one trading session; and the lack of RI and JAI’s understanding of the risks of volatile and speculative exchange traded products. FINRA found Maughan’s unsuitable trading violative of FINRA Rules 2010, 2111, 2360 and NASD Rule 2310.
FINRA Public Disclosure reveals that Maughan is the subject of a customer initiated investment related arbitration claim that settled for $500,000.00 in damages based upon allegations against Maughan of breaching a contractual and fiduciary duty to the customer; making false or misleading statements about investments; and negligently trading or recommending equities and options for the customer’s account when he was associated with Financial West Group. FINRA Arbitration No. 15-02211 (Mar. 29, 2017).
Maughan’s employment with Financial West Group was terminated on August 17, 2017.
