Dennis P. Van Patter of Dallas, Texas, a registered representative with VSR Financial Services, Inc., was fined $10,000 and suspended for forty-five days from association with any Financial Industry Regulatory Authority (FINRA) member in all capacities after consenting to findings that he made unsuitable recommendations to firm customers. Letter of Acceptance, Waiver and Consent, No. 2013036647401 (Nov. 20, 2015).
According to the AWC, from May 2008 through July 2010, while Van Patter was associated with his firm, he had recommended that customer DT invest $1,614,000 in alternative investment securities, including note programs, REITS, oil and gas drilling partnerships, and private placements. The AWC reported that the offering documents described the investments as highly speculative and risky.
The AWC stated that on Van Patter’s firm’s new account form, the customer had indicated that his primary objectives and risk tolerance included moderate income, moderate growth and income, moderate growth, and conservative growth. DT had reportedly indicated to Van Patter that he was not comfortable with volatility in the stock market and wanted to pursue an alternative to investing in the stock market. FINRA found that Van Pattern, rather than making recommendations with DT’s moderate risk tolerance, had recommended concentrated positions in higher risk alternative investments. The AWC indicated that by July 1, 2010, DT had an estimated fifty-two percent of his liquid net worth in the high risk alternative investments as a result of Van Patter’s recommendations.
FINRA ultimately found that Van Patter’s recommendations to DT was not suitable for DT considering that DT was interested in a limited level of risk (moderate growth, moderate growth and income, moderate income, conservative growth), in consideration of the concentrated nature of the alternative investments, and finally due to DT’s financial position. Consequently, FINRA found Van Patter to have violated NASD Conduct Rule 2310, NASD Conduct Rule 2110, and FINRA Rule 2010.
FINRA Conduct Rule 2111 provides that a member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.
A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.
Public disclosure records reveal that Van Patter has been subject to eight disclosure incidents. On April 11, 2008, Van Patter settled a customer dispute for $15,000.00 after the customer alleged excessive trading, unsuitable investments, and unauthorized trading in a trust account. On August 13, 2012, Van Patter settled a customer dispute for $50,000 after the customer alleged unsuitable investments.
On May 5, 2014, Van Patter settled a customer dispute for $215,000.00 after the customer alleged misrepresentation, breach of fiduciary duty, and negligence. On May 27, 2014, Van Patter settled a customer dispute for $11,250.00 after the customer alleged misrepresentation, breach of fiduciary duty, and negligence. On June 15, 2015, Van Patter settled a customer dispute for $40,000.00 after the customer alleged unsuitable investments, violation of common law negligent misrepresentation, breach of fiduciary duty, and negligence.
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