Andrew Scott Corbman, of Lansdown, Virginia, was suspended for one month from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity after consenting to findings that he engaged in unsuitable recommendations and provided misleading communications to investors. Letter of Acceptance, Waiver and Consent, No. 2010024620302 (Feb. 1, 2016).
According to the AWC, from April 2009 through March 2010, three of FSC Corporation’s customers received unsuitable recommendations from Corbman that lacked consistency with the risk tolerance and investment goals of his firm’s customers. Corbman apparently recommended inverse leveraged exchange traded funds that FINRA deemed were highly risky and unsuitable. The AWC also stated that the customers’ accounts were over concentrated.
The AWC further reported that prospectuses provided to the couple contained investments into options, futures, swap agreements, and forward contracts with various floors and caps. Two of Corbman’s customers who apparently purchased from him in 2009 were married and had moderate to aggressive risk tolerance. Corbman had recommended to the individuals, DNA and DRA, the investment of triple inverse and leveraged non-traditional exchange traded funds. The exchange traded funds, according to the AWC, are part of a group of non-traditional exchange traded funds that aim for returns to be multiplied by an underlying index’s performance, and where the funds may also achieve the inverse of the index’s performance (or both).
An estimated $128,000.00 was provided to Corbman from the couple to invest, where their positions in the non-traditional exchange traded funds grew to ninety-four percent of the overall assets in the couple’s account. The couple had suffered an approximate $9,450.00 loss after selling their positions in the securities. The AWC stated that Corbman’s recommendations had resulted in customers having an unsuitable and over concentrated position in the risky exchange traded funds. FINRA found that Corbman’s recommendations had exceeded the risk tolerance and objectives of such customers. FINRA found that as a result of Corbman’s misconduct, he had violated FINRA Rule 2010 and NASD Rule 2310.
The AWC subsequently stated that another a retired widow, JB, had opened up two accounts with FSC Securities Corporation in March 2010, where Corbman was assigned to her accounts. JB reportedly was a conservative investor with goals of income. Corbman reportedly recommended that JB invest in the Absolute Return fund, which FINRA deemed unsuitable for JB given her investments objectives and risk tolerance. The client reportedly had no agenda to invest with risk. The Absolute Return fund, according to the AWC, was a complex investment designed to achieve capital appreciation. JB’s investment in this fund, via Corbman’s recommendations, accounted for an estimated seventy-nine percent of her assets in her firm accounts. JB ultimately sold the positions in this fund from one of her accounts, where she lost an estimated $25,600.00.
FINRA found that the concentration of JB’s assets in the Absolute Return fund was excessive considering her risk of loss and the fact that such risk exceeded her stated goals and risk tolerance. Corbman was found by FINRA to have violated FINRA Rules 2010 and NASD Rule 2310 as a result of such misconduct.
The AWC further stated that from March 2010 through January 2011, e-mails were distributed to ten of Corbman’s customers by Corbman that contained the Absolute Return fund’s sales brochure. In this e-mail correspondence, there was reportedly no representation of any particular investment’s performance, but merely performance-related data and illustrations that were based on investment models. The information, according to the AWC, contained hypothetical data that did not account for any specific product’s trading data.
FINRA found that the sales brochure failed to provide investors a reasonable basis to evaluate the securities, nor did the brochure identify risks, specific asset classes, risks associated with the securities, or any statement that referenced the cost/benefit of alternative options. FINRA found that Corbman violated FINRA Rule 2010 and NASD Rule 2210 (d)(1)(A) as a result of this misleading correspondence directed to investors.
Public disclosure records reveal that Corbman has been subject to thirteen disclosure incidents. On July 16, 2012, Corbman settled a customer dispute for $8,850.00 after Corbman was alleged by the customer to have failed to disclose fees and charges of investments, as well as having inadequately diversified investments for the customer. On September 8, 2003, Corbman settled a customer dispute for $25,000.00 after the customer alleged fraud, negligence, unauthorized trading, churning, unsuitability, breach of fiduciary duty, breach of contract, and violations of Securities Exchange Act of 1934 Section 10(b).
On December 10, 2008, Corbman settled a customer dispute for $72,500.00 after the customers alleged that they were forced to pay fees and penalties and were denied break point discounts as a result of Corbman’s liquidation of investments. On January 25, 2011, Corban was terminated by FSC Securities Corporation amid allegations that he used unapproved advertising, violated firm policies, and failed to use forms associated with the firm’s sales practices.
On March 4, 2013, Corbman settled a customer dispute for $25,000.00 after clients alleged poor performance and unsuitable investments. On March 14, 2013, Corbman became subject to a pending customer dispute, in which the customer alleged unsuitable variable annuity purchases, misrepresentation, negligence, unjust enrichment, breach of fiduciary duty, breach of contract, fraud, churning, and violations of state securities and insurance laws.
Additionally, on September 30, 2014, Corbman settled a customer dispute for $21,000.00 after the customer alleged over concentrations of investments, and suitability violations. Corbman was subject to two tax judgments/liens on March 28, 2014 and January 22, 2015, and became subject to a pending bankruptcy action on September 8, 2015.
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