best broker fraud lawyer

Banks do not want to be in the banking business. Rather than managing customer deposits, it is much more lucrative and less risky, at least from the bank’s perspective, to solicit customers to purchase securities.

CCO Investment Services Corp.

CCO Investment Services Corp. is a wholly owned subsidiary of Citizens Financial Group, Inc., which is owned by the Royal Bank of Scotland, and in substantial part, operates from kiosks located in traditional retail bank branch offices of Citizens Bank.

CCO Fined Over $4.9 Million

Since 2006, CCO has been fined more than $4.9 million by a series of federal and state securities regulators in connection with sales practice violations, including the failure to supervise, and telemarketing, and “cross-selling” of Citizen’s bank customers, in connection with the sale of variable annuities and other securities.

SEC Instituted Administrative Proceedings Against CCO

On October 21, 2013, the United States Securities & Exchange Commission, instituted administrative proceedings pursuant to Section 203(f) of the Investment Advisers Act of 1940 (Advisers Act) against Stephen E. Gagnon (Respondent or Gagnon). From August 2010 through March 2013, Gagnon was associated with CCO Investment Services Corp.

The SEC Complaint

According to the SEC Complaint, In April 2011, a CCO customer who in April 2004 had purchased a variable annuity sold by Gagnon when he was associated with Commonwealth Financial complained to the Rhode Island Department of Business Regulation’s Division of Securities. The customer’s complaint alleged that in July 2007, Gagnon, while associated with LPL, convinced her to terminate the original variable annuity and replace it with two other variable annuities that were, among other things, inappropriate investments for someone of her age. The customer further alleged that she was subjected to charges in excess of $18,000 for termination of the original variable annuity. The customer further alleged that a signature in her name, dated July 16, 2007, which appeared on the client signature line of a disclosure document required by LPL for annuity replacements, was not in fact her signature.

On March 25, 2013, the Rhode Island Department of Business Regulation, an agency which, among other things, performs similar functions to a state securities commission, entered a consent order entitled In the Matter of Stephen E. Gagnon, DBR No. 125C086 (Rhode Island Order) against Gagnon. The Rhode Island Order found that Gagnon violated, among others, the anti-fraud provisions of Rhode Island’s securities laws and certain Rhode Island laws concerning insurance producers.

The Rhode Island Order, among other things, required Gagnon to cease and desist from any further violations of those laws, revoked Gagnon’s investment adviser representative and insurance producer licenses, and stated that Gagnon shall have the right to apply for re-registration as a broker-dealer, sales representative, insurance producer, investment adviser, and/or investment adviser representative in the state of Rhode Island after ten years.

FINRA Public Disclosure Records

According to FINRA Public Disclosure Records, Gagnon was terminated by CCO in March 2013 after it came to light that he may have forged customer signatures on certain documents associated with the purchase of variable annuities. However, it also appears that Gagnon, prior to his association with CCO was the subject of at least three customer initiated investment related complaints alleging that Gagnon had engaged in fraud in connection with the sale of variable annuities and highly risky TICs or “Tenants In Common” investments while associated with LPL Financial and Commonwealth Financial Network.

Interestingly enough, at least with respect to the sale of variable annuities, both firms denied all liability as a result of Gagnon’s conduct and their failure to supervise Gagnon, because these customers signed multiple disclosures about the annuity products’ features. Accordingly, it would appear, at least according to Gagnon’s former employers, that irrespective of a customer’s age, overall financial condition, or expressed investment objectives, that an unsuitable investment recommendation, can miraculously become suitable of the customer signs a series of forms, which in fact may be completely contradictory to the broker’s actual statements or misrepresentations concerning and otherwise unsuitable investment product.

Variable Annuities

Variable annuities are investment contracts, and are therefore securities under the federal securities laws.

NASD Cautioned Members (Now FINRA)

In 1996, NASD Regulation (now the Financial Industry Regulatory Authority (FINRA) specifically cautioned members that “as securities, the sales and distribution of Variable Contracts are fully subject to the NASD’s sales practice rules,” and the when a Variable Contract is recommended and sold to a public customer, Rule 2310 requires that: 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. NASD Notice to Members 96-86.

The NASD has further stated that in connection with evaluating a customer’s suitability, that Annuities may be unsuited for customer needing “liquidity and short term investments,” and “the customer’s immediate need for retirement income.” (See also NASD Notice to Members 99-35)(“The registered representative should inquire about whether the customer has a long-term investment objective and typically should recommend a variable annuity only if the answer to that question, with consideration of other product attributes, is affirmative).

In 2000, the NASD has found, in connection with more than 80 disciplinary actions involving the sale of annuities to retirees, that among the most common misrepresentations, is the misrepresentation that “Variable life policies were not insurance but were an investment savings or retirement plan.” NASD Notice to Members 00-44, July 2000 at 300 (“Unsuitable sales to customers including retirees and person who did not know that they were purchasing insurance or did not want life insurance”).

In 2004, the North American Securities Administrators” Association (NASAA) ranked the sale of Variable Annuities “often pitched to seniors” as one of the “Top Ten” investment scams affecting the investment public, and particularly senior citizens.

Noting that “[h]igh commissions, typically above 5% for variable annuities, help drive sales of these products,” a Joint report issued by the United States Securities & Exchange Commission and the NASD in June 2004, found that “[u]nsuitable variable product recommendations were made without a reasonable basis in light of information the broker may have had regarding the customer’s:

  • Age
  • Financial or tax status (e.g., sales that exceed a pre-determined percentage of the customers net worth; sales that require the mortgage of a home to finance the purchase
  • Sales that require a customer to borrow from an existing life insurance policy or annuity; or sales to a corporation, trust, or other non-natural entity that did not hold as agent for a natural person, and whose purchase therefore caused the loss of tax-deferral status in the annuity)
  • Investment objectives (e.g., same product recommended to all customers (one size fits all), or a customer’s current need for income)
  • Investment sophistication and ability to understand the complexity of variable products generally, and to monitor the investment of the separate account
  • Low risk tolerance (e.g., high risk equity funds are recommended to an investor with low risk tolerance)
  • Need for liquidity (e.g., sale of an illiquid variable product to persons who need their funds soon, and as a result incur surrender charges to obtain their funds)
  • Lack of need or desire for life insurance

Joint SEC/NASD Report on Examination Findings Regarding Broker-Dealers Sales of Variable Insurance Products, June 2004 at 9.

FINRA Rule Became Effective

In May 2008, FINRA Conduct Rule IM-2821 became effective, and specifically provides that: (2) Prior to recommending the purchase or exchange of a deferred variable annuity, a member or person associated with a member shall make reasonable efforts to obtain, at a minimum, information concerning the customer’s age, annual income, financial situation and needs, investment experience, investment objectives, intended use of the deferred variable annuity, investment time horizon, existing assets (including investment and life insurance holdings), liquidity needs, liquid net worth, risk tolerance, tax status, and such other information used or considered to be reasonable by the member or person associated with the member in making recommendations to customers.

The NASAA Ranks Variable Annuities

Each year since 2002, the North American Securities Administrators’ Association (NASAA) ranked the sale of Variable Annuities “often pitched to seniors” as one of the “Top Ten” investment scams affecting the investment public. Commentators agree, and note that variable annuities are a notorious vehicle for abusive sales practices. (J. Duval, Variable Annuities: A Primer, Securities Arbitration 2003, Practicing Law Institute (2003) at 9-18, P. Michaels, Variable Annuities: Has the Arbitration Floodgate Opened?, Arbitration 2003, Practicing Law Institute (2003). The “reason many brokers are prone to commit these abuses is that the combined commissions from the sale of a typical variable annuity are higher than the commissions from almost any other product.” (Duval at 12).

The sale of annuities to persons above age 70 is “highly questionable” and “if the clients original objective was for immediate income then the purchase of a variable annuity is definitely unsuitable.” (Id. at 16)(emphasis added).

If investors were customers of CCO Investments or Stephen E. Gagnon, they ought to have their investment accounts reviewed by a professional to determine if they have been the victim of fraud in connection with the sale of annuities.

Guiliano Law Group

If you have been the victim of securities fraud you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.

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