Joel S. Bovee, of Wayzata, Minnesota, a stockbroker with Feltl & Company, was fined $5,000.00 and suspended for two months from association with any Financial Industry Regulatory Authority (FINRA) member in a principal capacity after consenting to findings that he had failed to supervise a stockbroker who engaged in unsuitable transactions. Letter of Acceptance, Waiver and Consent, No. 2013036524901 (Jan. 26, 2016).
According to the AWC, Bovee was associated with Felt & Company’s Minnesota branch, where he worked in the capacity of branch-office manager. Bovee was reportedly responsible for implementing supervisory authority over one of the firm’s stockbrokers, L.Z. Apparently, L.Z. had effected transactions in multiple client accounts, specifically with unit investments trusts.
Between December 2011 and January 2013, a registered representative under Bovee’s direct supervision engaged in unsuitable short-term trading of unit investment trusts on behalf of multiple customers. Although Bovee reviewed the representative’s activity on a daily basis and knew that the representative had engaged in the same type of trading previously, Bovee failed to either prevent the unsuitable transactions or inform his superiors about the representative’s continued misconduct.
FINRA found that unit investment trust trading was wrong considering that the securities were intended to be designed and implemented in a different manner than how L.Z. was trading them. The AWC stated that in September 2011, the firm’s chief compliance officer M.E. was notified by Bovee regarding the excessive trading activity being committed by L.Z., which prompted M.E. to tell L.Z. to decrease trading. M.E. reportedly tasked Bovee with ensuring that his trading practice restrictions imposed on LZ were supervised.
The AWC stated that Bovee inadequately supervised L.Z. According to the AWC, L.Z. had persisted through 2012 to excessively trade the unit investment trusts on a short-term trading basis while M.E. instructed him to decrease trading. Bovee was considered by FINRA to have done nothing in the way of notifying his compliance department of ongoing misconduct, rejecting the transactions, or preventing the same conduct being committed by L.Z. that was the subject of Bovee’s prior concern. The AWC stated that Bovee had violated FINRA Rule 2010 and NASD Conduct Rule 3010 as a result of his failure to supervise.
The AWC, signed and agreed to by Bovee, also specifically provides that he “may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis.”
In connection with the Regulatory Proceeding against Bovee, he was represented by Feltl’s “in house” counsel Thomas Steichen, Esquire.
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On April 7, 2017, we received a letter from Mr. Steichen, purportedly not in his capacity as Bovee’s attorney but as general counsel to Feltl & Company as “incorrectly Mr. Bovee and the actions surrounding the AWC as fraud.” However, as Mr. Steichen concedes that our information regarding Mr. Bovee does not include the word “fraud,” nor is “fraud” mentioned in the AWC, Mr. Steichen does not like our post because our site is named “securitiesarbitration,” which implies obviously, fraud.
Many courts have found that the failure to supervise is a form of fraud, giving rise to a private cause of action under the broad construction of SEC Rule 10b-5, as an “omission” in the failure to disclose that the broker was unsupervised. See, e.g. Klock v. Lehman Brothers Kuhn Loeb Inc., 585 F. Supp. 210, 216 (S.D.N.Y. 1984).
However, we did not include the word “fraud” anywhere in the information concerning the regulatory action against Mr. Bovee or Feltl.
Nonethless, Mr. Steichen states that if we do not remove our reference to Mr. Bovee, “we will take action in order to protect Mr. Bovee and his reputation.” Perhaps if Mr. Bovee or his lawyer does not like the publicly available information regarding the regulatory action reported by FINRA against Mr. Bovee, they should have not signed the AWC or agreed to its provisions, including agreeing not to “deny directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis.”
Although Mr. Bovee, let us be clear, was never accused of fraud, the customers of LZ, the broker that Mr. Bovee was directly responsible to supervise, who engaged in the short term trading of Unit Investment Trusts, might consider the conduct of Feltl’s registered representative to be fraudulent. But that is not for us to decide.
What we do know is that Mr. Bovee admitted to the failure to supervise LZ.
We also know that this is not Feltl’s first rodeo. Since 2005, Feltl has been subject to approximately a dozen regulatory actions substantially relating to the failure to supervise, including a cease and desist action by the United States Securities & Exchange Commission, Release No. 34-65838 (November 28, 2011). For all we know, Mr. Bovee, represented by Feltl’s lawyer, may have agreed to take a hit for the home team.
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