James Edward Armstrong Sr. and his son James Edward Armstrong Jr. both of Wake Forest North Carolina and stockbrokers formerly registered with Royal Alliance Associates Inc. were fined and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that they failed to adequately supervise a firm stockbroker who possibly effected unauthorized transactions and made misrepresentations to customers. Letter of Acceptance Waiver and Consent No. 2015044939902 (Dec. 4, 2018).
According to the AWC, between 2012 and 2015, during the period that the Armstrongs had been responsible for supervising Mark Perry, one of the firm’s stockbrokers, Perry apparently made unsuitable investment recommendations to at least four customers of the firm. Perry reportedly placed excessive amounts of the customers’ funds in precious metals and urged customers to buy and hold exchange traded funds or mutual funds for prolonged periods. The AWC stated that Perry received a customer complaint because of his trading, then proceeded to make misleading statements to the customer.
The AWC stated that Perry had been accused by other customers of effecting unsuitable transactions, however Perry failed to apprise the firm about that conduct. Further, a customer’s risk tolerance had been apparently misrepresented by Perry on the customers’ account documentation. Ultimately, the four customers collectively sustained losses of at least $200,000.00 because of Perry’s inappropriate trading.
The AWC stated that Perry had not been adequately supervised by Armstrong Jr. Apparently, the written supervisory procedures used by the firm mandated a supervisor to examine customers’ account transactions to determine whether they are suitable for them. Evidently, this duty to supervise suitability was delegated to Armstrong Jr. by his father. However, Armstrong Jr. failed to detect signs of inappropriate trading having taken place in the firm’s account. The AWC stated that a number of trade alerts had been provided to Armstrong Jr. in regard to the transactions that Perry executed.
Armstrong Jr. evidently failed to investigate Perry’s transactions for suitability, but rather, depended on the assurances provided to him by Perry. In addition, Perry reportedly claimed that he told Armstrong Jr. that the customers comprehended the transactions and knew of the risks when authorizing them. Critically, Armstrong Jr. reportedly knew about Perry’s trades having failed to conform to the risk tolerance of his customers, and informed Armstrong Sr. about Perry’s possible excessive and unsuitable trading. However, Armstrong Sr. failed to take any action against Perry. Consequently, Perry’s unsuitable transactions persisted. The AWC additionally stated that Armstrong Jr. failed to uncover information about a customer complaint because of ignoring his supervisory responsibilities to review Perry’s correspondence.
Furthermore, the AWC stated that Armstrong Sr. failed to adequately supervise the situations. Particularly, Armstrong Sr. never conducted an investigation into the trades that Perry made in the customers’ accounts; he disregarded concerns and took no disciplinary action against Perry. FINRA found that Armstrong Sr.’s failure to take action in an appropriate way led Perry’s unsuitable trades to go on for months. Consequently, FINRA found that the Armstrongs’ conduct was violative of FINRA Rules 2010 and 3110(a) and National Association of Securities Dealers (NASD) Rule 3010(a). In addition to the Armstrongs being suspended, Armstrong Sr. was fined $5,000.00 and Armstrong Jr. was fined $7,500.00.
FINRA Public Disclosure reveals that James Edward Armstrong Sr. has been identified in two customer initiated investment related disputes containing allegations of Armstrong Sr.’s misconduct. For example, a customer initiated investment related arbitration claim involving Armstrong Sr.’s conduct was settled for $125,000.00 in damages based upon allegations of breach of a fiduciary duty, omissions, misrepresentation and suitability.
