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FINRA ordered New Jersey-based broker-dealer Buckman, Buckman & Reid, Inc. to pay approximately $205,000 in restitution to seven customers for failing to reasonably supervise two former registered representatives who recommended excessive and unsuitable trades in multiple customer accounts.
As part of the settlement, FINRA also required the firm to review and revise its supervisory system and written supervisory procedures. FINRA previously barred both registered representatives from the industry.
Additionally, FINRA sanctioned Harry John Buckman, Jr., a senior vice president and one of BBR's owners, for failing to supervise the two registered representatives, both of whom reported directly to Buckman. FINRA suspended Buckman from associating with any FINRA member in any principal capacity for three months, assessed a $20,000 fine, and required him to complete 40 hours of continuing education concerning supervisory responsibilities.
"A firm and its supervisors must be vigilant in identifying and responding to unsuitable activity such as excessive trading and unsuitable concentration of customer accounts, which can result in significant customer harm," said Susan Schroeder, FINRA's executive vice president of the department of enforcement.
According to Schroeder, FINRA has prioritized ensuring that affected customers receive full restitution, the firm fixes its supervisory flaws, and the responsible supervisor is held accountable and receives additional training.
"Due to the firm's financial condition, FINRA did not impose a fine in addition to these other sanctions – the firm's limited resources are better spent on remedial measures designed to prevent similar misconduct in the future," she added.
FINRA found that BBR and Buckman failed to identify that one of the now-barred registered representatives had engaged in frequent and short-term trading of Unit Investment Trusts (UITs) and other long-term investments with significant up-front costs. From 2013 to 2014, this rep's excessive trading of UITs and other long-term products caused his customers to pay approximately $210,000 in commissions and resulted in losses of approximately $163,000.
BBR and Buckman also failed to identify that the second barred registered representative had excessively traded three customers' accounts. For example, this rep made more than 130 trades in the account of an 89 year-old retired customer during a one-year period. BBR and Buckman also failed to reasonably supervise this rep's recommendations that four additional customers purchase concentrated positions in a single, speculative security.
In settling this matter, BBR and Buckman neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
SEC Charges Sales Assistant With Misappropriation Scheme
The Securities and Exchange Commission charged a sales assistant with misappropriating funds from brokerage customers of a registered broker-dealer with which she was associated.
The SEC's complaint alleges that Kimberly Sredich, who was a sales assistant to a registered representative associated with a registered broker-dealer firm, sold securities in at least 15 customer accounts and misappropriated the proceeds of the sales.
In her capacity as a sales assistant, Sredich was permitted to communicate directly with brokerage customers and had direct access to customer brokerage accounts.
According to the complaint, Sredich misappropriated at at least $339,725 from customers, most of whom were elderly. The SEC says the majority of the affected customers ranged from 67 to 91 years old.
The complaint alleges that Sredich forged customers' signatures and used blank letters of authorization previously signed by customers to transfer funds to a company she controlled. She then allegedly transferred most of the misappropriated funds to a personal bank account.
Sredich and her husband used these customer funds for numerous personal expenses, including mortgage payments, credit cards bills, fast food, and large cash withdrawals.
