Legend Securities Inc., a former New York based brokerage firm whose license was cancelled by Financial Industry Regulatory Authority (FINRA) in January of 2017, was fined $300,000.00 by the Securities Commissioner of South Carolina based upon an Administrative Order containing findings that the firm charged customers with fees which were not reasonable, made unsuitable investment recommendations to customers, maintained supervisory procedures which were deficient, and committed securities fraud. In the Matter of: Legend Securities, Inc., Administrative Order File No. 14108 (Mar. 18, 2016).
According to the Order, the firm effected securities sales in five customer accounts to accumulate cash for purposes of covering the firm’s imposed $50.00 annual fee. Apparently, from January of 2014 to December of 2015, the fees were assessed by the firm in four-hundred and twenty-two transactions. Evidently, customers were not able to determine the effect of the fees on the customers’ ability to profit from transactions because the firm did not apprise the customers of the fees charged in their accounts. The Order indicated that customers merely received notifications of a handling or postage fee after the transactions had been effected in their accounts, and these fees did not correlate to costs which the firm incurred in connection with doing business. Ultimately, the fees were deemed by the Commissioner of South Carolina as having been mischaracterized and arbitrarily assessed by the firm. Consequently, the firm was found by the Commissioner of South Carolina to have engaged in unethical and dishonest practices by imposing unreasonable fees; conduct violative of S.C. Code of Regulations R. 13-501(A)(21), 13-501(C), and FINRA Rule 2122.
The Order additionally stated that the firm lacked information in seventy-one customer accounts regarding objectives for investing. Additionally, the firm lacked information in sixty-four customer accounts concerning customers’ birthdates. Suitability information in several accounts which the South Carolina Securities Division reviewed reportedly contained material inaccuracies. Yet, recommendations for securities transactions had been made in thirty-six of the customer accounts which contained incomplete or inaccurate suitability information. At least in one case, Legend Securities failed to demonstrate that the customer’s suitability had been analyzed properly, and lacked the required information to conclude that transactions which the firm recommended in the customer’s account were appropriate. The firm was found by the Commissioner of South Carolina to have violated S.C. Code of Regulations R. 13-501(A)(3) in this regard.
The Order further stated that approximately twelve stock purchases of a non-exchange listed security, GTAT, had been solicited by the firm, where customers’ suitability forms were not procured prior to the transactions having been executed. The firm purportedly violated its own policies which required that a securities suitability form be completed and submitted prior to the registered representatives’ recommendations of over-the-counter equities taking place. Consequently, the firm’s conduct was found by the Commissioner of South Carolina to be violative of S.C. Code of Regulations R. 13-501(A)(21) as well as FINRA Rule 3110.
Moreover, the Order stated that a bankruptcy was declared by GTAT on October 6, 2014, in which this information was disclosed on the over-the-counter market. However, one-thousand purchases of GTAT shares had been solicited by the firm after the disclosure of GTAT’s bankruptcy filing had been communicated. Evidently, customers who purchased the GTAT securities were not apprised by the firm of the bankruptcy filing. Legend Securities, Inc. was found by the Commissioner of South Carolina to have committed securities fraud by omitting GTAT’s bankruptcy in the course of soliciting the purchases of GTAT stock; conduct violative of S.C. Code Ann. Section 35-1-501.
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