Kai Chong Cheng of New York New York a stockbroker formerly employed by Merrill Lynch Pierce Fenner Smith Inc. and investment adviser representative and president of Affinity Capital Management LLC has been fined $10,000.00 and suspended for five years from registering as an investment advisor according to a New Jersey Bureau of Securities Administrative Consent Order containing findings that Cheng engaged in unethical or dishonest securities business practices and had been expelled from a national securities association. In the Matter of Kai Chong Chen et al. Administrative Consent Order (May 18, 2017).
According to the Order, Cheng reportedly utilized unauthorized correspondence channels to make investment recommendations to customer, JO. Cheng apparently communicated with JO on 175 occasions regarding JO’s investment portfolio. The Order stated that JO ultimately incurred significant losses, prompting Merrill Lynch to correspond with JO about JO’s suitability for transactions placed in the account.
The Order stated that Merrill Lynch sought information from JO to confirm that Cheng was responsible for directing investment decisions and that JO was able to take on the risks. Without having received a response from JO regarding JO’s comfort with the riskier investment portfolio, Cheng continued effecting trades in the customer’s investment account.
The Order revealed that eventually, after the customer incurred drastic losses, Cheng signed a note to JO obligating Cheng to pay the customer $145,000.00. Cheng also reportedly attempted to add JO’s name to a life insurance policy without informing the firm; conduct violative of N.J.S.A. 49:3-58(a)(1) and N.J.S.A. 49:3-58(a)(2)(vii).
The customer’s complaint ensued on July 6, 2012, in which counsel for JO told Merrill Lynch that Cheng obtained commissions and profits from JO’s transactions that were not warranted. Apparently, Cheng failed to follow the customer’s instructions of liquidating JO’s account, leading the customer to incur significant losses. Consequently, the Bureau Chief of the New Jersey Bureau of Securities found that Cheng’s conduct was violative of N.J.S.A. 49:3-58(a)(1) and N.J.S.A. 49:3-58(a)(2)(vii).
The Order also noted FINRA barring Cheng in all capacities for failing to cooperate with an investigation into whether Cheng committed violations of MSRB, NYSE, NASD or FINRA rules with respect to Cheng’s arrangements with JO during the time Cheng was associated with Merrill Lynch. The Bureau Chief of the New Jersey Bureau of Securities found FINRA’s barring of Cheng as grounds to suspend Cheng’s registration in the state.
FINRA Public Disclosure confirms that a customer initiated investment related arbitration claim regarding Cheng’s conduct was resolved on November 24, 2014 for $450,000.00 in damages based upon accusations that Cheng made investment recommendations that were not suitable for the customer, misrepresented and omitted information concerning the customer’s over-the-counter equities investment, and neglected to follow the customers investment instructions. FINRA Arbitration No. 13-03201 (Nov. 24, 2014).
Cheng was discharged by Merrill Lynch Pierce Fenner Smith Inc. on February 4, 2015 supported by allegations that Cheng engaged in unauthorized transactions in a customer’s account.
