John Wigmore Reilly III (also known as Jack Reilly), of Orlando, Florida, a stockbroker registered with Securities Research Inc., has been fined $5,000.00 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Reilly engaged in the quantitatively unsuitable trading in mutual funds (more commonly known as “switching”). Letter of Acceptance, Waiver, and Consent No. 2021069353201 (June 29, 2020).
According to the AWC, between July of 2018 and June of 2020, Reilly recommended 22 unsuitable short-term switches in Class A mutual fund shares. These switches, which were for two customers, had an average holding period of 229 days. The stockbroker engaged in a pattern of mutual fund switching between different mutual fund families.
FINRA stated that both customers had moderate risk tolerances, were retired, and were over 65 years old. Reilly did not consider the customers’ investment objectives and time horizons. Additionally, he overlooked that switching within the same fund family could have reduced their transaction costs.
The AWC also stated that from June of 2020 to September of 2021, Reilly executed three more short-term switches in Class A mutual fund shares. Those transactions were not in the best interest of one of these customers. These switches had an average holding period of 273 days. Reilly failed to consider the costs associated with the recommendations, time customers’ investment horizons, and the customer’s investment objectives, according to the regulator. He also ignored viable alternatives, including mutual funds within the same fund family or other share classes that could have allowed customers to pay less.
Reilly led customers to pay $40,972.50 in excessive sales fees. Therefore, Reilly violated Securities Exchange Act of 1934 Rule 15l-1(a)(1) as well as FINRA Rules 2010 and 2111. These rules require stockbrokers to act in the best interest of their customers, considering their investment profiles and ensuring recommendations are suitable.
Reilly was associated with Securities Research Inc. in Orlando, Florida from August 28, 2000, to July 28, 2022.
