Kelly Wayne Feehrer of Chattanooga Tennessee a stockbroker formerly registered with Merrill Lynch Pierce Fenner Smith Incorporated has been fined $5,000.00 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity supported by findings that he made unsuitable recommendations to customers in reference to unit investment trust transactions. Letter of Acceptance Waiver and Consent No. 2018060356501 (June 25, 2021).
According to the AWC, when Feehrer was associated with Merrill Lynch, he continuously executed short-term trades involving unit investment trusts. FINRA mentioned that UITs could be unsuitable when traded in the short term as they have longer terms and contain higher costs.
Over 200 customers were advised by Feehrer to roll over their unit investment trust holdings at least 100 days before they matured. The AWC stated that this happened 3,000 times. The customers of Merrill Lynch were advised by the stockbroker to invest in these UITs for 215 days on average. He recommended for them to sell those investments and then purchase new UITs. As set forth in the AWC:
UITs impose a variety of upfront sales charges. For example, during the relevant period,
a typical 24-month UIT contained three separate charges: (1) an initial sales charge,
which was generally 1% of the purchase price; (2) a deferred sales charge, which was
generally up to 2.5% of the offering price; and (3) a creation and development fee (C&D
fee), which was generally 0.5% of the offering price.2If the proceeds from the sale of a
UIT were “rolled over” to fund the purchase of a new UIT, UIT sponsors often waived
the initial sales charge, but still applied the deferred sales charge and C&D fee.
There were 190 incidents where series-to-series rollovers were effected. FINRA indicated that with a rollover of this type, the investor had sold their position in a UIT to buy another one in a newer series. The newer series of the UIT had similar if not the same strategies and objectives as the investments that Feehrer’s customers were just invested in.
FINRA relayed in the AWC that one customer was recommended a series-to-series rollover where the first unit investment trust had a two year maturity but was sold in under a year so that the customer could invest in the newer UIT series. The strategy and objective of the UIT in the newer series was the same as the previous edition. The regulator indicated that the customer was basically asked to buy the same investment but pay a sales charge for it.
FINRA indicated that customers were required to pay inappropriate sales charges because of acting on Feehrer’s strategy. Feehrer made unsuitable recommendations to Merrill Lynch customers given the costs and the frequency of the transactions. He violated FINRA Rules 2010 and 2111, and National Association of Securities Dealers (NASD) Rule 2310 for this reason.
FINRA Public Disclosure also confirms that Feehrer has been referenced in a customer initiated investment related FINRA securities arbitration claim which was resolved for $14,999.00 in damages founded on accusations that Feehrer made misrepresentations to the customer concerning common and preferred stock transactions during the period that Feehrer was associated with Merrill Lynch. The claim also alleges that the stockbroker provided unsuitable recommendations to the customer in regard to those equities trades.
Since October 9, 1990, Feehrer has been registered with Merrill Lynch as a stockbroker. Since April 14, 2004, he has been registered there as an investment adviser representative.