Articles Posted in Ferris, Baker Watts, Inc.

The Financial Industry Regulatory Authority and the RBC Wealth Management-acquired Ferris, Baker Watts LLC have agreed to settle charges that the latter engaged in the unsuitable sales of reverse convertibles to elderly clients in the 85 and over group, well as in the inadequate supervision of such notes to retail customers. By agreeing to settle, the investment firm is not agreeing with or denying the allegations.

The alleged misconduct took place prior to RBC acquiring Ferris, Baker Watts. As part of the settlement, the brokerage firm will pay close to $190,000 in restitution to 57 account holders for financial losses related to their purchase of reverse convertibles.

FINRA says that between January 2006 and July 2008, Ferris, Baker Watts allegedly sold reverse convertible notes to about 2,000 retail investors while failing to properly supervise and guide its supervising managers and brokers on how to determine whether their recommendations of the notes were suitable for clients. The investment firm is also accused of not having a system in place that could effectively monitor, detect, and handle possible reverse convertible over-concentrations.

In its release announcing the settlement, FINRA cites one example involving Ferris, Baker Watts selling five reverse convertibles in the amount of $10,000 each to an 86-year-old retired social worker. These notes represented between 15% to 25% of her investment portfolio at different times. FINRA says that for another client, the investment firm sold five notes to a 20-year-old who was making under $25,000 a year. This investment was 51% of the client’s retirement account.

Related Web Resources:
FINRA Orders Ferris, Baker Watts to Pay Nearly $700,000 for Inappropriate Sales of Reverse Convertible Notes, FINRA, October 20, 2010

Finra fines RBC Wealth unit over brokers’ sales of ‘unsuitable’ investments, Investment News, October 20, 2010 Continue reading

According to Securities & Exchange Commission Administrative Law Judge Brenda Murray, former Ferris, Baker Watts, Inc. general counsel Theodore Urban did not fail to reasonably supervise broker, Stephen Glantz, who has admitted to his involvement in a stock market manipulating scheme involving Innotrac Corp. stock. Murray says that Urban performed his job in a “thorough and reasonable manner” and that he was careful and objective.

Urban had been accused of allegedly abdicating his supervisory responsibilities by not responding to red flags related to the Glantz’s alleged misconduct even though prior to the broker’s hiring, he had already been flagged because of several customer complaints and his “questionable reputation in the industry.”

The SEC would later also find that Glantz had been involved in unauthorized, manipulative transactions of TC Healthcare, Inc. stock in February 2005. After pleading guilty to violations of Section 10(b) of the Securities Exchange Act of 1934, in 2007 he was sentenced to 33 months in prison and ordered to pay $110,000 in restitution

When determining whether Urban, who was Glantz’s supervisor, properly supervised him in a manner intended to prevent securities fraud violations, ALJ Murray noted that per the 1934 Securities Exchange Act, a person cannot be held liable for supervisory deficiencies if the proper procedures that should have detected and stopped the violations were applied and the person had no reasonable grounds to believe that the procedures were not being followed.

Related Web Resources:
SEC Judge Finds Investment Bank GC was not Negligent in Supervising Rogue Broker, The Blog of Legal Times, September 8, 2010
Judge: Former general counsel of Ferris, Baker Watts was not responsible for supervising broker convicted of securities fraud, Baltimore Sun, September 9, 2010
Broker Glantz charged with fraud in Innotrac stock scheme, Cleveland.com, September 4, 2007 Continue reading

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