Richard William Lunn Martin of Miami, Florida, a stockbroker formerly registered with G.F. Investment Services, LLC, has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon an Order Accepting Offer of Settlement issued by FINRA Office of Hearing Officers, which contained findings that Martin, inter alia, made unsuitable investment recommendations to customers concerning alternative investments. Department of Enforcement v. Richard William Lunn Martin, No. 2013035817701 (Apr. 24, 2017).
According to the Order, between March of 2011 to July of 2015, non-traditional exchange traded funds were recommended by Martin to customers, where he particularly encouraged investors to keep their positions in the funds in order to protect against the global markets failing. Evidently, Martin had the belief that the debt crisis in the United States would lead to a depression and that the global markets would collapse as a result. A strategy was then set forth by Martin through 2011 based in large part om shorting equities. Following this point, Martin reportedly pushed inverse and leveraged non-traditional exchange traded funds to customers. The Order stated that by March of 2011, customers’ existing short positions in stocks were liquidated and placed into the non-traditional exchange traded funds pursuant to Martins’ recommendations.
The Office of Hearing Officers stated that the risk of a market collapse was the only risk which Martin based his strategy for investing upon. Particularly, the Order stated that Martin did not factor in the possibility that he was incorrect about the future state of the markets. The Order revealed that customers’ positions resulting from Martin’s recommendations were concentrated anywhere between seventy-five and ninety-nine percent in the non-traditional exchange traded funds; where customers were persuaded by Martin to hold their positions despite the products having been normally geared to meet their investment objective in one trading session. Apparently, the prospectuses for the products Martin recommended indicated that investment results were sought in one trading day by the fund; the investments were not meant to be utilized for short term trading.
Martin purportedly lacked knowledge regarding the basics of non-traditional exchange traded funds. Specifically, the Order stated that non-traditional exchange traded funds often reset its objective on a daily basis – which can cause the fund and its underlying index to be inaccurately correlated; an error which is magnified when the markets are volatile. Evidently, Martin was not cognizant of impact of tracking errors on customers’ investment performance; nor was he cognizant that the non-traditional exchange traded funds were not normally meant to hedge long-term against market volatility.
Martin’s failure to understand the risks pertaining to non-traditional exchange traded funds led the Office of Hearing Officers to conclude that the recommendations which he made were not based on an adequate foundation. The Order revealed that a total of three-hundred and thirty-four non-traditional exchange traded funds were recommended and solicited by Martin to forty-four of the firm’s customers. The Order further stated that Martin accumulated $55,912.00 in commissions, despite customers having sustained $2,400,000.00 in investment losses. FINRA found that Martin’s conduct in this regard was violative of FINRA Rules 2010, 2110, and NASD Rule 2310.
The Order further stated that in 2014, Martin’s customers received e-mails from him, wherein Martin made claims and statements which the Office of Hearing Officers concluded to be baseless, unwarranted and exaggerated. In one case, Martin reportedly indicated that the market would decline at a specific rate over a five-year period. The Order also indicated that Martin made statements that were indicative of promises to customers regarding market performance, as well as inaccurate representations concerning expert review of investments. FINRA Office of Hearing Officers concluded Martin’s conduct in this regard to be violative of FINRA Rules 2010 and 2210.
FINRA Public Disclosure reveals that between May 20, 2015, and August 9, 2016, eight customer initiated investment related disputes concerning Martin’s conduct were settled for a total of $997,500.00 in damages based upon allegations including unsuitability and poor performance.
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