Jason L. Figueroa of Boca Raton, Florida, a stockbroker with GMS Group, LLC, was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity after consenting to findings that he had recommended and engaged in unsuitable trading in nontraditional ETFs in customer accounts, while exercising discretion without prior written authority in customer accounts. Letter of Acceptance, Waiver and Consent, No. 2013038756501 (Oct. 20, 2015).
Leveraged, inverse, and inverse-leveraged exchange traded funds are designed to return a multiple of an underlying index or benchmark, inverse of that benchmark, or both, over only the course of one trading session. Consequently, the performance of these non-traditional exchange traded funds can differ significantly from the performance of their underlying index, particularly when held longer than single trading sessions. According to FINRA, inverse and leveraged ETFs that reset daily are typically not suitable for retail investors planning to hold them for longer than one trading session, especially in volatile markets.
According to the AWC, beginning in October, 2011, Figueroa had revised the investment strategy he was recommending for four of his customer accounts which were owned by retired and unsophisticated investors who had limited experience and a moderate risk tolerance. Figueroa’s implemented strategy largely consisted of investments in leveraged and inverse-leveraged exchange traded funds and notes. The AWC indicated that Figueroa recommended the nontraditional ETF transactions prior to first conducting adequate due diligence concerning the features/risks of such products.
Figueroa reportedly failed to consider the fact that the ETFs he was recommending were designed to achieve their stated objectives within a single trading day, prompting him to fail to sell the products on the same day that they were purchased. The AWC indicated that he held the ETFs in the customers’ accounts for more than one day on one hundred and eighteen occasions. The AWC further stated that Figueroa failed to conduct adequate customer-specific suitability analysis concerning the purchase and sale of the nontraditional ETFs on behalf of the customers.
According to the AWC, Figueroa’s antics of investing in the nontraditional ETFs with prolonged holding times resulted in $92,000 in losses for customer AW, $36,000 in losses for customers LW and MGK, $32,000 in losses for customers JK and MGK, and $10,000 in losses for customer JK’s sister. As a result of recommending the unsuitable transactions in the nontraditional ETFs, FINRA found Figueroa’s conduct to be in violation of NASD Rule 230, FINRA Rule 2111, and Rule 2010.
NASD Conduct Rule 2310 and FINRA Rule 2111 both require that a Stockbroker have a reasonable basis for recommending a security, and that they also conduct a customer-specific inquiry to ensure the security is suitable for the particular customer. FINRA holds that a Stockbroker lacks a reasonable basis to recommend a security to its customers if he fails to investigate the security’s characteristics sufficiently to understand the potential risks and rewards of the transaction. A security is also not suitable from a customer specific standpoint if it does not align with the customer’s financial situation, investment objectives, and risk tolerance.
According to the AWC, while Figueroa was associated with his firm, he was not approved to exercise discretion in any customer accounts. From October 2011 – October 2013, Figueroa reportedly exercised discretion in fourteen accounts (three of which were previously mentioned). The AWC stated that Figueroa never received the customers’ written authorization in order to effect the discretionary trades. Figueroa, according to the AWC, never disclosed his use of discretion on annual compliance questionnaires when such questionnaires specifically asked if Figueroa engaged in such conduct. FINRA found Figueroa’s conduct of exercising unauthorized discretion to be violative of NASD Conduct Rule 2510(b) and Rule 2010.
By definition, a broker is liable for making unauthorized trades without the customer’s prior authorization. Absent written discretion, it can be a violation of Section 10(b) of the Exchange Act, and Rule 10b-5, as promulgated thereunder, to effect transactions in customer accounts without their prior authorization or consent.
Customers also have a duty to review securities purchase and sale confirmations and review their securities accounts. If a stockbroker has placed unauthorized transactions in a customer account, the customer under most circumstances has a duty to act, or a duty to complain, or else generally, the customer may be deemed to have ratified these transactions, with actual or imputed knowledge, by doing nothing. Under such circumstances, a customer’s damages may be limited to the time they knew or should have known about the unauthorized transactions. However, the rules do not contemplate de facto discretion, or the acquiescence to a pattern of discretionary trading without a formal trading authority. It is an actionable violation of the rules and is generally indicative of other bad or wrongful conduct.
Public disclosure records reveal that Figueroa has been subject to nine disclosure incidents. On February 3, 2009, Figueroa settled a customer dispute for $85,000 after the customer alleged negligence, fraudulent sales practices, and intentional broker misconduct. On February 17, 2009, Figueroa settled a customer dispute for $75,000.00 after a client alleged fraudulent sales practices, intentional broker misconduct and negligence. On February 18, 2009, Figueroa settled a customer dispute for $5,000.00 after a customer alleged negligence, fraudulent sales practices and intentional broker misconduct.
On August 20, 2013, Figueroa settled a customer dispute for $125,000.00 after a client alleged unauthorized and unsuitable investments in his account. On the same day, Figueroa settled a customer dispute for $9,000.00 after a client alleged an unauthorized investment in her account.
On November 22, 2013, Figueroa settled a customer dispute for $150,000.00 after a client alleged negligence, misrepresentation, breach of fiduciary duty, deception, exploitation, and unauthorized trades. Finally, on December 2, 2013, Figueroa settled a customer dispute for $142,500.00 after a customer alleged fraud, breach of fiduciary duty, negligent supervision, and breach of contract.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
