Lucas Lichtman, of Englewood Cliffs, New Jersey, a stockbroker for Caldwell International Securities Group, was fined $7,500.00 and suspended for nine months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity per an Order Accepting Offer of Settlement containing findings that Lichtman engaged in unsuitable investment recommendations. Department of Enforcement v. Lucas Lichtman., No. 2014039091903 (Aug. 25, 2016).
In addtion to Lichtman, five other Caldwell Internations Brokers, Alex Etter, Lucas Lichtman, Richard Lim, Richard Lee and Alain Florestan, were also charged by FINRA.
According to the Order, Lichtman was employed as a registered representative for ECG – one of Caldwell International Security Group’s branches. Apparently, Lichtman was compensated only via commissions that he received upon effecting customers’ securities based transactions. Lichtman was reportedly responsible for cold calling customers, and targeted investors with speculative investment agendas and extensive risk tolerance. The Order stated that Lichtman’s strategy included the purchase and sale of securities based upon catalyst events occurring, and in pursued this strategy in a repetitive manner through the period in which customers held their accounts with the firm.
Apparently, between June of 2012 and July of 2014, Licthman engaged in this investment strategy which FINRA ultimately deemed to be unsuitable for customers. Licthman was cited by FINRA as making recommendations to the firm’s clientele to pursue an active trading strategy despite such individuals not understanding the risks associated with such. Particularly, FINRA found that Lichtman did not comprehend the strategy which was recommended to customers, and did not understand the concepts of turnover rates and cost/equity ratios. The Order stated that Licthman was not capable of comprehending how costs would impact the account of one of his customers.
The Order stated that customers often paid greater than four percent commissions with regard to purchases and sales of securities that were recommended. Lichtman reportedly failed to notify customers in cases where commissions that customers were expected to pay would outweigh potential gains per transaction, or whether such commissions could lead customers to bear investment losses.
Apparently, customers dealt with exceedingly high cost/equity ratios ranging from approximately eighteen percent up to over eighty-one percent, while annual turnover rates ranged from approximately four up to nearly ten. In one case, a customer account which Lichtman was jointly responsible for had a cost/equity ratio of over sixty-three percent and annual turnover rate of nearly eight.
Licthman apparently never conducted due diligence regarding the active investment strategy which he implemented. The Order stated that aforementioned customer’s account which Licthman was responsible for had never been reviewed by him to determine whether such strategy had benefited the customer, or was even suitable. Lichtman reportedly did nothing in the way of effecting modifications to such strategy when considering how the customer’s costs had drastically accumulated. Apparently, Licthman did not understand what it meant for his customer to break even.
FINRA found that Lichtman ultimately failed to consider the performance in certain market conditions, volatility, as well as other risks concerning the benefits and costs pertaining to his implemented investment strategy. FINRA deemed that Licthman’s strategy was not in the customer’s best interest. As such, FINRA found that Licthman’s conduct was violative of FINRA Rules 2010 2111.
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