David J. Sullivan of Boston, Massachusetts, a registered representative with J.P. Morgan Securities LLC, was fined $5,000 and suspended from association with any Financial Industry Regulatory Authority (FINRA) member in any and all capacities for fifteen days after consenting to findings that he engaged in unauthorized discretionary trading. Letter of Acceptance, Waiver and Consent No. 201402543201 (Nov. 23, 2015).
According to the AWC, from September 2011 through December 2014, while Sullivan was associated with J.P. Morgan, he had effected a number of transactions in three accounts of customer SC, despite not having first obtained prior written authorization from SC. J.P. Morgan reportedly had not accepted the accounts which Sullivan traded in as discretionary trading. FINRA found that Sullivan’s conduct was violative of NASD Conduct Rule 2510(b) and FINRA Rule 2010.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanction from the federal and state government bodies.
By definition, a broker is liable for making unauthorized trades without the customer’s prior authorization. Absent written discretion, it is 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.
Public disclosure records via FINRA’s BrokerCheck reveal that on February 19, 2009, Sullivan became subject to a dispute where a customer claimed that the financial advisor misrepresented features of a corporate bond purchased by the customer. On September 17, 2014, Sullivan settled a customer dispute for $1,000,000.00 after customers alleged unsuitable investment recommendations, unauthorized trading, excessive trading, and misrepresentations made from 2011 – 2014. Customers of Merrill Lynch, Sullivan’s prior firm, alleged unsuitable investment recommendations, unauthorized trading, excessive trading and misrepresentation from January 2008 – September 2011.
On January 8, 2015, J.P. Morgan discharged Sullivan after Sullivan failed to cooperate in an internal investigation which included allegations that he exercised discretion without written authorization and engaged in excessive trading. On April 17, 2015, Sullivan consented to requirements instituted by the State of Massachusetts that he be supervised on a heightened basis after customer complaints surfaced concerning excessive trading, misrepresentations, etc.
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