Richard Stephen Hughes of Wilmington Illinois a stockbroker formerly employed by Summit Brokerage Services Inc. has been fined $10,000.00 and suspended for eight months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that he made unsuitable recommendations to customers regarding mutual fund and unit investment trust investments. Letter of Acceptance Waiver and Consent No. 2016051750001 (Sept. 5, 2018).
According to the AWC, from April of 2015 to May of 2016, during the time that Hughes was associated with Wells Fargo, he serviced the account of seventy-two-year-old customer, SL. Apparently, the brokerage accounts which SL owned had objectives of moderate income or moderate growth.
Apparently, in April of 2015, SL was advised by Hughes to place $545,000.00 in bond unit investment trusts which contained mark-ups costing SL as much as 3.8 percent. In July of 2015, just three months later, Hughes discovered that the unit investment trust values had declined, and advised SL to sell her positions for $506,000.00. SL was advised to place the proceeds from the bond unit investment trust sales into mutual fund products.
As a result of Hughes’ recommendations, SL apparently placed $166,000.00 in each of three equity mutual funds from three separate families. By purchasing the class A share funds, Hughes reportedly incurred sales charges ranging from 2.7 to 3 percent. Evidently, ten months following the purchase of the class A share mutual funds, Hughes was advised by Hughes to sell her holdings for $420,290.00. Apparently, Hughes informed the customer that the funds had declined for reasons that he could not specify.
The AWC stated that Hughes subsequently advised SL to place $377,299.00 in bond unit investment trusts because of Hughes’ opinion about the more conservative nature of the unit investment trusts. Evidently, those unit investment trusts were comparable to the unit investment trusts that SL previously sold. Apparently, by purchasing the new unit investment trusts, Hughes was charged markups ranging from 3.5 to 3.8 percent.
FINRA stated that through the April of 2015 to May of 2016 timeframe, Hughes was charged excessive fees and commissions of at least $34,000.00 as a result of the trading of mutual funds and bond unit investment trusts. FINRA determined that Hughes’ recommendations were not appropriate for SL because of the cost and frequency that the transactions had been effected. Consequently, Hughes’ conduct was found by FINRA to be violative of FINRA Rules 2010 and 2111.
The AWC additionally stated that Hughes’ May 2016 liquidation of SL’s mutual funds caused red flags to be raised by Wells Fargo concerning Hughes’ trading practices. Apparently, Hughes’ supervisor probed him about whether he advised SL to buy bond unit investment trusts with the proceeds from the mutual fund sales. Hughes purportedly made a false statement to his supervisor by claiming that SL knew about the costs associated with the investment transactions.
The AWC revealed that the supervisor informed Hughes that the supervisor would be reaching out to SL to verify that SL was aware of the investment costs. Prior to doing so; however, Hughes reportedly contacted SL and provided her with a script to be used in responding to Hughes’ supervisor. Evidently, the script provided to SL was riddled with false statements.
As it turns out, SL never utilized the script provided by Hughes when the supervisor contacted SL. Rather, SL confirmed with the supervisor that she had no knowledge of the commissions that were charged for the transactions effected in her account. SL also confirmed with the supervisor that she was provided a script from Hughes to be used in speaking with the supervisor, and that the script contained false statements. FINRA found Hughes’ conduct violative of FINRA Rule 2010.
FINRA Public Disclosure reveals that Hughes has been identified in two customer initiated investment related disputes containing accusations of his misconduct while employed with Wells Fargo and Edward Jones. Particularly, on September 11, 2001, a customer filed an investment related complaint concerning Hughes’ activities in which the customer sought more than $5,000.00 in damages supported by allegations that omissions had been made to the customer concerning the surrender charges pertaining to Polaris and Hartford annuities.
Subsequently, on October 6, 2016, a customer initiated investment related complaint involving Hughes’ conduct was resolved for $34,480.00 in damages based upon accusations that the customer was not made aware of the nature of her unit investment trust and corporate debt investments as well as the commissions charged in her account.
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