Richard William Lunn Martin, of Penang, Malaysia, was charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that Martin made unsuitable recommendations to customers, and false and misleading statements to customers regarding investments. Department of Enforcement v. Richard William Lunn Martin, No. 2013035817701 (June 27, 2016).
According to the Complaint, from March 2011 through July of 2015, Martin made unsuitable recommendations to investors regarding the purchase of non-traditional exchange traded funds for long term holding periods. Apparently, Martin’s investment strategy at such time was based on his view that the financial markets were due to collapse.
The Complaint stated that Martin assumed that the United States’ debts would result in a depression, and urged investors to short certain stock positions from 2009 through 2011 as a result. As the Complaint indicated, Martin’s recommendations were solely associated with the risk of a financial market collapse.
The Complaint further stated that from the later part of 2010 into March of 2011, Martin recommended investments that consisted of the leveraged and inverse non-traditional exchange traded funds. Martin purportedly recommended to customers that holding non-traditional exchange traded funds for extended periods would result in a hedge against a market collapse.
Martin’s investment recommendations, according to the Complaint, were made to practically every one of his clients for long-term holding periods, and recommended that practically every client’s entire allocation to consist of the non-traditional exchange traded funds. According to the Complaint, customers’ investment concentrations in the ETFs ranged from seventy-five percent all the way up to ninety-nine percent.
FINRA alleged that Martin’s investment recommendations lacked an adequate foundation, primarily based on the highly elevated risk associated with exchange traded funds that are held longer than one trading session. FINRA noted in the Complaint that the non-traditional exchange traded funds’ objectives were geared to be achieved in one trading session, and that fund managers typically rebalance holdings between one trading session to the next.
According to the Complaint, Martin engaged in the solicitation and recommendation of forty-four customers and prompted three hundred and thirty-four transactions in an estimated fifteen non-traditional ETFS. Customers ultimately faced investment losses amounting to $8,000,000.00, while Martin raked in $55,912.00 in commissions. FINRA found that Martin’s recommendations were violative of NASD Rules 2310, as well as FINRA Rules 2111 and 2010.
The Complaint additionally alleged that from June 2014 through October 2014, Martin’s communications to the public were false and misleading. For example, the Complaint alleged that Martin stated to customers that there would be a ninety percent decline in stocks over the next five years. FINRA claimed that this Martin’s statement in this regard was baseless.
FINRA also claimed that Martin’s communications did not provide investors with a legitimate basis to make factual evaluations, and such communications were comprised of language which FINRA claimed constituted unwarranted and exaggerated promises and other statements regarding investment performance. The Complaint alleged that Martin’s conduct here was violative of FINRA Rules 2210 and 2010 in this regard.
Public disclose records via FINRA’s BrokerCheck reveal that Martin has been subject to nineteen disclosure incidents. On February 24, 2006, Martin settled a customer dispute for $24,135.00 after a customer alleged Martin did not disclose mark-ups to the customer in connection with the customer’s bond purchases. On July 16, 2009, Martin was terminated from Latam Investments LLC amid allegations of theft.
On September 1, 2009, Martin settled a customer dispute for $8,000.00 for churning, negligence, and unsuitable recommendations. On February 28, 2011, Martin settled a customer dispute for $40,000.00 amid the customer’s allegations of unsuitable recommendations. On November 4, 2011, Martin settled yet another customer dispute for $127,500.00 amid the customer’s allegations of unsuitable recommendations.
On June 7, 2014, Martin settled a customer dispute for $214,000.00 after a customer alleged poor performance stemming from Martin’s unsuitable investment recommendations. On October 10, 2014, Martin settled another customer dispute for $40,000.00 after a customer alleged unsuitability.
Martin settled five additional customer disputes concerning unsuitable investment recommendations from November 17, 2004 through April 6, 2016, all in reference to the aforementioned exchange traded fund transactions recommended by Martin. Martin is subject to two additional pending customer disputes in this regard. On July 7, 2015, GF Investment Services LLC terminated Martin.
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