Richard Charles Foster, of Tulsa Oklahoma, a stockbroker formerly registered with Cetera Investment Services, LLC, has been fined $10,000.00 and suspended for six months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity by consenting to findings that he made unsuitable investment recommendations to customers. Letter of Acceptance, Waiver and Consent, No. 2016049239101 (Jan. 18, 2018).
The AWC stated that in November of 2013, Cetera provided Foster authorization to run CF Income Fund, wherein Foster represented that CF Income Fund would not involve customers of the firm but instead serve as a vehicle for him to conduct his personal trading. Evidently, Cetera also authorized Foster to open a brokerage account for CF Income Fund at an outside broker-dealer that Foster intended on utilizing to effect exchange traded funds options transactions.
The AWC revealed that in 2013, a customer was advised by Foster to roll over the customer’s 401(k) into an individual retirement account with Cetera. The customer pursued Foster’s recommendations, transferring $155,000.00 from the customer’s 401(k) into the individual retirement account where it was invested in mutual funds. Evidently, in 2014, during the time that Foster advised the customer about investing in the individual retirement account, he informed the customer about being able to generate more attractive investment returns if the customer’s monies were liquidated from the individual retirement account and placed in the CF Income Fund. Foster apparently informed the customer that the customer could offset the tax consequences by way of the returns generated from the CF Income Fund.
The AWC stated that in March of 2014, the customer followed Foster’s recommendations, liquidating his individual retirement account, furnishing $160,000.00 of those funds to Foster to invest in the CF Income Fund. Foster apparently failed to inform Cetera about his activities involving the customer, namely that Foster would be depositing the customer’s funds in the CF Income Fund and trading on the customer’s behalf.
The AWC stated that from March of 2014 to August of 2015, the CF Income Fund account incurred substantial losses from Foster’s trading which were exacerbated by the assessment of commissions relating to Foster’s high rate of trading of exchange traded funds options. Apparently, the customer discovered in September of 2015 that he sustained a $81,000.00 tax penalty as a result of liquidating his individual retirement account at Cetera. The customer reportedly sought the return of his funds from Foster to address the tax consequences; however, he only received $52,000.00 of the $160,000.00 invested with Foster in the CF Income Fund.
The AWC revealed that Foster maintained only limited experience with a covered call investment strategy; he had no experience effecting exchange traded fund options transactions at a high volume – the strategy utilized within the CF Income Fund. Apparently, based on Foster’s lack of experience and implementation of an unprofitable and costly strategy, FINRA determined that Foster did not possess an adequate foundation to conclude that his strategy was suitable for investors of any type.
FINRA also concluded that Foster inappropriately recommended for the customer to utilize the entirety of the customer’s retirement portfolio (approximately one-third of the customer’s overall net worth) for a speculative investment strategy involving exchange traded fund options. FINRA indicated that Foster’s recommendation was particularly unsuitable because he caused the customer to be exposed to risks that the customer was not financially equipped to handle, and knew that the customer would face drastic tax consequences by liquidating the individual retirement account. Consequently, FINRA found that Foster’s conduct was violative of FINRA Rules 2010 and 2111.
FINRA Public Disclosure reveals that Foster is the subject of a customer initiated investment related civil action brought in the District Court of Tulsa County, Oklahoma, where the customer sought at least $10,000.00 in damages supported by accusations of breach of fiduciary duty, negligence and securities fraud in reference to mutual fund and stock transactions effected in the customer’s account.
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