According to an Order Accepting Offer of Settlement with the Financial Industry Regulatory Authority (FINRA), Berthel, Fisher & Co. allegedly violated securities laws. According to the Order, a former registered representative with the company, Jeffrey Dragon, generated approximately $417,000 in concessions for himself and the firm, at the expense of his customers, by recommending and effecting a pattern of unsuitable short-term trading of unit investment trusts (UITs). Many of the customers were unsophisticated investors, and Dragon recommended that they liquidate UIT positions that they had held for only a few months. FINRA alleged that Dragon’s recommendations were excessive and unsuitable. Furthermore, Dragon allegedly designed his recommendations to prevent his customers’ UIT purchases from qualifying for sales-charge discounts.
According to the settlement, “Berthel Fisher allowed this activity to occur, and profited from it as a direct result of its inadequate system for supervising UIT trading. Throughout the UIT periods, the company’s only regular supervisory review of UIT recommendations and customer activity consisted of manual reviews of daily trade blotters that did not indicate either how long UIT positions had been held before liquidations or the source of funds used to purchase UITs. Thus, Berthel Fisher supervisory system was not reasonably designed to prevent short-term and potentially excessive UIT trading.”
A broker has a duty to only recommend those investments that are suitable for every client, based on their age, net worth, investment objectives and investment sophistication. If he does not, his brokerage firm may be held liable for those losses, on a contingency fee basis, in the FINRA arbitration forum. The brokerage firm has an obligation to reasonably supervise its employees while they are registered there.