Todd Cohen, of Melville, New York, a stockbroker registered with Aegis Capital Corp. is the subject of a customer initiated investment related FINRA securities arbitration claim seeking damages of $200,000 and alleging that he made unsuitable investment recommendations, breached his fiduciary duties, and made material misrepresentations in connection with the sale of certain bonds. FINRA Arbitration No. 26-00904.
FINRA Public Disclosure shows that in addition to a series of previously unpaid tax liens, Mr. Cohen is also the subject of another customer initiated investment related FINRA Arbitration claim filed in 2018, where it was also alleged that he made unsuitable recommendations. The matter, which was pending in Pittsburgh, Pennsylvania, was settled for $375,000.
FINRA Rule 2111 with regard to suitability, specifically provides that:
(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
(b) Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:
(1) the customer’s financial status;
(2) the customer’s tax status;
(3) the customer’s investment objectives; and
(4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.
FINRA Rule 2111. Suitability determinations are a two-step process: the first step is reasonable diligence as to the risks associated with a particular security to determine if the product is suitable at all; the second step is to determine whether it is suitable for a specific client given their overall financial condition and expressed investment objectives.
As the US Securities & Exchange Commission, in its approval of the consolidated FINRA Suitability Rule observed:
Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors.
In general, what constitutes reasonable diligence will vary depending upon, among other things, the complexity of and risks associated with the security or investment strategy and the firm’s or associated person’s familiarity with the security or investment strategy.
A firm’s or associated person’s reasonable diligence must provide the firm or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy.
See Securities Exchange Act Release No. 63325 (November 17, 2010)(emphasis added).
The Guiliano Law Group, P.C.
For more than thirty years, our practice is limited to the representation of investors. If you believe that you have been the victim of misconduct or fraud, contact us for a free consultation or a confidential evaluation of your claim. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation For more information, contact us at (877) SEC-ATTY.
