Robert Estevez, of Greenwich, Connecticut, a stockbroker with Investors Capital Corporation, was fined $20,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity after consenting to findings that he made unsuitable investment recommendations to customers. Letter of Acceptance, Waiver and Consent, No. 2014040158902 (Sept. 16, 2016).
According to the AWC, between May of 2011 and September of 2012, Estevez engaged in the recommendations of complex investments, called Steepeners which were designed to provide investors with a return based on interest rate spreads.
According to the AWC, Steepeners are complex, structured products with returns linked to the spread between longer-and shorter-term interest rates – the so-called steepness ofthe yield curve. Steepeners offer periodic coupons that are fixed for a pre-specified period (e. g., one year) and floating thereafter. The fixed coupons generally offer an attractive, above-market interest, while subsequent coupons offer variable rates subject to a cap and floor depending on the observed spread. Steepeners usually have long maturities, which can span 20 to 30 years.
FINRA issued an alert on November 16, 2011 identifying potentially significant drawbacks to steepeners, including that the secondary market for these products may be illiquid. Similarly, the prospectuses for the steepeners recommended by Estevez warned that the secondary market for steepeners may be illiquid or even non-existent and, therefore, investors should be willing to hold the steepeners until maturity. As a result of these factors, steepeners generally are not suitable vehicles for short-term trading strategies.
The AWC stated that these products, which provide for a combination of a fixed coupon payment for a specified timeframe and a floating interest payment thereafter, raised concerns from FINRA due to the potential illiquidity of such products in the secondary market. FINRA stated in the AWC that the products were typically unsuitable for trading in the short term.
Estevez reportedly engaged in the recommendation of twenty-five of the steeper investments in nineteen customer accounts. The AWC stated that Estevez made these recommendations in connection with a short term and active trading philosophy. Particularly, some investors were advised by Estevez to hold such products for merely a couple months.
The AWC reported that Estevez’s customers who purchased the steepeners pursuant to his recommendations incurred losses estimated at $24,000.00 when such products when sold. FINRA found that Estevez’s recommendations were unsuitable, in violation of FINRA Rule 2010, 2111, and NASD Conduct Rule 2310.
According to FINRA’s BrokerCheck, Estevez has been subject to seven disclosure incidents prior to FINRA’s disciplinary action against him. Particularly, on June 11, 2013, a customer lodged a dispute against Estevez, in which the customer requested $80,000.00 in damages in connection with allegations against Estevez of charging excessive commissions and causing the customer to bear adverse account performance.
On February 19, 2014, another customer requested $13,936.00 in damages after the customer alleged that Estevez made unsuitable recommendations and engaged in an unauthorized transaction in the customer’s account. On November 3, 2014, Estevez became subject to a customer dispute, in which the customer requested $350,000.00 in damages after alleging to have suffered investment losses in accounts which were held with Estevez.
On February 1, 2016, Estevez became subject to another customer dispute, in which the customer complained about not receiving downside protection from investment losses. Estevez is currently subject to a pending customer dispute from July 22, 2016, in which the customer has alleged that Estevez is responsible for the customer’s investment losses.
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