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Leonard Allen Goldberg, a former registered representative with both J.P. Turner & Company, LLC, as well as Newport Coast Securities, Inc., has been charged by FINRA’s Department of Enforcement in a Complaint alleging Goldberg engaged in multiple forms of securities fraud; unsuitable mutual fund switching/trading; exercising of discretion without written authorization; falsification of electronic records, mutual fund switch forms, and new account documents; and forgery of customer signatures. Department of Enforcement v. Leonard Allen Goldberg, No. 2011026098504 (Aug. 28, 2015). Prior to FINRA’s Complaint, Newport Coast Securities, Inc. had discharged Goldberg on November 12, 2014, for failing to follow the firm’s policies and procedures.
According to the Complaint, from August of 2007 through August of 2014, while Goldberg was registered with two of his aforementioned firms, he had caused his customers losses in excess of $123,600, while earning more than $77,900 for himself and his employers in the course of utilizing unauthorized discretion within 300 ETF and mutual fund transactions.
A typical form of stockbroker misconduct or investment fraud includes excessive activity or churning. Securities brokers are typically compensated by each transaction effected in your securities account. Sometimes brokers effect these transactions in your account, not for the purpose of reasonably fulfilling your stated investment objectives, but instead in an effort to generate excessive commissions for themselves and their firm. Such conduct is called churning.
Churning is a type of fraudulent conduct in a broker-customer relationship where the broker over-trades a customer’s account to generate inflated sales commissions. According to FINRA Conduct Rule IM-2310-2, churning occurs when, to generate excessive commissions, a broker causes securities in a customer’s account to be bought and sold with a frequency too great in light of the customer’s financial needs, resources, and investment objectives.
Churning or excessive activity is examined in light of the customer’s investment objective and the type of securities being traded. For example, it may be inappropriate to pay a sales charge by buying and selling a mutual fund in a period of, let us say, a year. The short term trading of fixed income securities over a period of year may also be inappropriate. However, during this same period, it may not be inappropriate for a person seeking to trade options turn over their account twenty times.
The Complaint stated that from August of 2007 through February of 2012, Goldberg had engaged in a fraudulent scheme of executing unsuitable switches of Class A mutual fund shares in 5 of his customers’ accounts. Goldberg reportedly would replace 5 of his clients’ position(s) in Class A mutual funds with other Class A fund positions in excess of 90 occasions. The Complaint indicated that the affected clients trusted Goldberg to trade on their behalf, and Goldberg did not notify his clients in advance of making such transfers. The Complaint further stated that Goldberg had falsified (or caused to be falsified) his firm’s documents in carrying out his scheme.
FINRA alleged in the Complaint that Goldberg had no purpose of switching mutual funds within his customers accounts aside from making commissions for himself. For example, the Complaint indicated that Goldberg would make decisions to purchase and sell the mutual funds in the 5 customers’ accounts not based on fund performance or suitability of the customers, but rather simply to make repeated purchases and sales to generate repeated fees/charges. The Complaint reported that Goldberg would even sell funds from his customer’s account and buy the same funds back several months later or switch clients’ investments in one mutual fund to a related fund carrying the same investment objectives.
FINRA alleged that by concocting the scheme to defraud the aforementioned customers, Goldberg had willfully violated Securities Exchange Act of 1934 Section 10(b), Rule 10b-5(a) and (c), circumvented Section 17(a)(1) of the Securities Act of 1933 (or Section 17(a)(3) in the alternative), violated FINRA Rules 2010 and 2020, and NASD Rules 2110 and 2120.
FINRA further alleged in the Complaint that Goldberg violated NASD Rules 2110 and 2310, IM-2310-2, and FINRA Rules 2010 and 2111, based on the unsuitable short term switching of mutual funds. FINRA alleged that Goldberg, by acting with discretion in his customers’ accounts without their permission or approval from his firm, violated FINRA Rule 2010 and NASD Rules 2110 and 2510.
The Complaint additionally indicated that Goldberg, during the relevant period, caused inaccurate and false firm records based on submitting to his firms roughly 20 mutual fund switch forms and 238 electronic orders, where the majority of such transactions were identified as unsolicited orders. Further, the Complaint indicated that Goldberg had caused his 5 customers’ signatures to be forged on mutual fund switch letters and new account forms, and falsified information pertaining to each of his customers’ investment profiles regarding experience, risk tolerance, and net worth. Goldberg, while at Newport, allegedly went as far as fabricating the home addresses of certain of his clients because the clients were located in states in which Goldberg was not registered. FINRA alleged that Goldberg’s falsification of various documents/forms was violative of FINRA Rules 2010, 4511, and NASD Rules 2110 and 3110.
Public disclosure records via FINRA’s BrokerCheck reveal that Goldberg has been subject to 9 disclosure events, 6 of which involved customer disputes. As early as August 3, 1982, Goldberg settled with a customer for $147,000.00 after a customer alleged churning and unsuitable/unauthorized trading. On September 13, 1982, Goldberg settled a customer dispute for $18,500.00 after a customer alleged churning and failure to follow instructions regarding the liquidation of a client account. On December 30, 1994, Goldberg settled a customer dispute for $60,000 after a client alleged negligence and breach of contract. On May 15, 2002, Goldberg was subject to a customer dispute, where a customer requested $20,000 in damages after alleging unauthorized investments in limited partnerships, forgery, and unsuitability. Other customer disputes from October 15, 2009, and May 9, 2012, both involve claims of unauthorized transactions and unsuitable investments.
Public disclosure records also reveal that Goldberg, on June 26, 1986, was subject to a New York Stock Exchange regulatory action, where he was fined $25,000 and suspended for one month based on exercising discretion in the account of a customer without prior approval, while also engaging in conduct inconsistent with just and equitable principles of trade via failing to use due diligence to learn essential facts regarding a customer, a cash account, and an order prior to signing the names of customers to an option agreement without their authorization.
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, Esq., 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.