Kevin Marshall McCallum of Birmingham Alabama a stockbroker formerly registered with LPL Financial LLC has been fined $25,000.00 and suspended for one year from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon findings that he provided customers with unsuitable recommendations relating to a speculative business development company. Letter of Acceptance Waiver and Consent No. 2019062569501 (June 17, 2021).
According to the AWC, between May of 2017 and June of 2019, alternative investments had been recommended by McCallum to twelve of his customers. The investments concerned a risky business development company that was publicly traded. The AWC stated that there were warning signs concerning the company’s financial condition. The customers who were affected by this BDC transaction had lacked alternative investment experience and maintained low-to-moderate risk tolerances.
FINRA noted that BDCs are closed-end funds mainly investing in small and medium companies that do not rely on traditional financing or on the public capital markets. FINRA noted that distressed companies and early stage companies are provided with financing through the investment. Both secured and unsecured loans were held by the BDC that was recommended by McCallum. These companies operated in the oil and gas, pharmaceutical, communications, banking and construction setting.
The BDC McCallum recommended contained illiquidity risks. Interest rates also affected its investment returns. FINRA indicated that the net asset value of the BDC sustained declines from May of 2017 to June of 2019 because of write downs. Its share price also fell.
FINRA indicated that from May of 2017 to June of 2019, 12 customers were advised to invest between 17 and 60 percent of their liquid net worth in the alternative investment. Seven of those customers invested with funds that were held in their retirement accounts. The transactions generated $37,492.78 in commissions.
At least $1,222,092.29 in losses was realized by four customers who liquidated their positions. McCallum violated FINRA Rules 2010 and 2111 for his unsuitable recommendations.
The AWC also stated that McCallum emailed customers BDC information that was unbalanced and which did not allow for investors to adequately consider the BDC. Promissory and unwarranted statements were made in McCallum’s communications. Some of his comments were exaggerated or had contained unauthorized investment projections. In one case, McCallum did not disclose risks of maintaining a BDC position. He also promised that the BDC’s NAV would increase and that interest rates would be raised by the Federal Reserve. These statements were made by McCallum in violation of FINRA Rules 2010 and 2210.
FINRA Public Disclosure reveals that McCallum has been referenced in five customer initiated investment related disputes concerning allegations of his wrongdoing when he was employed by NBC Securities and LPL Financial. On October 8, 2020, a customer filed an investment related FINRA securities arbitration claim concerning McCallum’s conduct where the customer requested more than $5,000.00 in damages based upon accusations of the stockbroker’s bad investment advice to a customer between October of 2018 and December 2018 resulting in damages on Medley Capital Corporation closed-end funds. FINRA Arbitration No. 20-03421.
McCallum is also referenced in a customer initiated investment related FINRA securities arbitration claim in which the customer sought $4,800,000.00 in damages founded on allegations that the customers’ accounts had been concentrated in a closed-end fund that failed to meet their objectives for investing at LPL Financial. FINRA Arbitration No. 20-03840 (Dec. 8, 2020). According to the claim, the customers sustained losses on McCallum’s discretionary trades between October of 2017 and December of 2018.
On January 4, 2021, another customer initiated investment related FINRA securities arbitration claim involving McCallum’s activities was resolved for $500,000.00 in damages founded on accusations including unauthorized margin use and fraudulent transactions while McCallum was associated with both NBC and LPL Financial. FINRA Arbitration No. 19-01028. The claim alleges that the customer sustained damages on exchange traded funds, options, mutual funds and stocks.
McCallum is also the subject of a customer initiated investment related FINRA securities arbitration claim which was settled for $70,000.00 in damages supported by allegations that from 2011 to 2019, unsuitable stock trades were made by McCallum causing the customer to maintain an excessive concentration in the securities. FINRA Arbitration No. 19-03448 (Jan. 4, 2021). The claim alleges unauthorized purchases of Medley Capital Corporation by McCallum when he was at LPL Financial.
On February 25, 2021, a different customer filed an investment related arbitration claim regarding McCallum’s conduct where the customer requested more than $5,000.00 in damages supported by accusations that from August of 2019 to October of 2019, bad recommendations had been made by McCallum concerning Medley Capital Corporation. American Arbitration Association No. 01-21-0001-1521 (Feb. 25, 2021).
McCallum was registered with LPL Financial between May 24, 2012 and July 5, 2019.