Eric W. Kuchel of Brea, California, a stockbroker with LPL Financial LLC, was charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that Kuchel repeatedly delayed and failured to provide requested testimony in connection with a FINRA investigation into Kuchel’s alleged mutual fund transactions and private securities transactions. Department of Enforcement v. Kuchel, No. 2015047966701 (January 6, 2016).
According to the Complaint, FINRA alleged that on numerous occasions, Kuchel failed to appear for FINRA’s requested on-the-record testimony in connection with an investigation into mutual fund transactions in customer accounts that were effected by several of the firm’s stockbrokers, including Kuchel. The Complaint alleged that Kuchel’s repeated delays and failure to provide the requested testimony, which had spanned nine months from the original request, had materially impeded FINRA’s investigation.
Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a stockbroker engages or participates in the sale of securities to investors outside of the formal approval of the securities firm with whom they are associated.
As a general matter, stockbrokers are only permitted to engage in the solicitation or sale of investments and investment related products approved by their firm. However, quite frequently, stockbrokers solicit, participate, or directly engage in the sale of typically unregistered securities or investments without the approval and outside of the auspices of their firm. These investments may take on many forms, and may include the recommendation of an outside money manager, or a hedge fund, which may sometimes turn out to be a Ponzi scheme. Sometimes these outside investments may include off-shore securities, insurance trusts, stocks or ownership interests in small businesses, startup ventures, corporate debentures, mortgage notes, private placements, promissory notes, oil & gas interests, real estate partnerships, pre-IPO shares, and a variety of other investments.
FINRA stockbrokers like Kuchel who do not cooperate with FINRA’s investigations often face a permanent bar from practicing in the securities industry as such lack of cooperation violates FINRA’s Rule 8210 – requiring that no member or person shall fail to provide information or testimony or permit an inspection and copying of books, records, or accounts pursuant to the rule. FINRA typically accompanies a Rule 8210 violation with a Rule 2010 violation when individuals, according to FINRA, do not appear to observe high standards for commercial honor and just and equitable principles of trade.
Public disclosure records reveal that Kuchel has been subject to at least five customer disputes. On March 1, 2011, Kuchel was subject of a financial compromise. On August 22, 2012, a claimant was awarded $277,468.00 against Crown Capital Securities, L.P. and Kuchel after alleging lack of suitability, breach of fiduciary duty, misrepresentation and failure to supervise in connection with the sale of various non-traded REIT(s) and tenant-in-common real estate investments.
On June 9, 2015, Kuchel became subject to a pending customer dispute, where a customer is requesting $499,999.00 after alleging unsuitable recommendations, negligence, breach of fiduciary duty, fraud, negligent failure to supervise and failure to conduct due diligence in relation to the sale of five non-traded private placements to the claimants. On November 19, 2015, LPL Financial LLC discharged Kuchel amid allegations of Kuchel’s failure to appear for required on-the-record testimony with FINRA.
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