FINRA

Werner was named a respondent in a FINRA complaint alleging that he enriched himself at the expense of an elderly, blind, and physically disabled customer, by engaging in a manipulative, deceptive and fraudulent scheme pursuant to which he churned each of the three accounts the customer had with Werner. The complaint alleges that as a result of churning the customer's accounts, Werner willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and FINRA Rules 2020 and 2010. The elderly customer is also a widow and before her husband's death in 2012, Werner was their broker since 1995. She has been blind since childhood. Her late husband, of 40 years, until he passed away, also was blind. By the time the customer's husband died, she was in such poor health that she required continuous in-home care, which is something Werner knew. Again, after her husband's death, Werner continued as the customer's broker, servicing each of her accounts. Werner recommended all of the transactions in her accounts and exercised control of her accounts. Because of her disabilities, the customer relied completely on Werner for account recommendations and information on account activity. For within just over three years, while first working at a member firm and then later at another member firm, Werner churned and excessively traded each of the customer's three accounts. Werner placed over 700 trades in the customer's accounts, generating approximately $243,430.20 in commissions and fees, and approximately $183,734.33 in total net losses for the customer. The complaint also alleges that during this same period, the annualized cost-to-equity ratios for the customer's accounts ranged from approximately 64.40 percent to 97.73 percent. Again, Werner exercised control over the three accounts held by the customer. The trading in the customer's accounts was excessive, as evidenced by the high turnover rates and cost-to-equity ratios, and it was inconsistent with the customer's investment objectives, risk tolerance, and financial situation. Werner did not have reasonable grounds or a reasonable basis to believe that the recommended transactions were suitable for the customer in light of her investment objectives, risk tolerance, and financial situation. The complaint further alleges that in July 2015, while working at Legend, Werner recommended an unsuitable variable annuity exchange to the customer, without having a reasonable basis to believe that the transaction was suitable. Werner and his associated firm received a commission of $11,799.81 on the sale, of which approximately $10,030 was paid to Werner as a commission. The features of the variable annuities did not materially differ. Werner's replacement of the customer's variable annuity was unsuitable because the variable annuity that Werner recommended for exchange did not provide any benefit to the customer that outweighed the increased fees and expenses and the new surrender periods she incurred as a result of the exchange. Moreover, on the disclosure statement concerning the exchange, Werner stated that the primary reason for recommending the exchange was "low returns." No other reason is stated. However, the historical one-year, three-year and five-year returns on the customer's mutual fund portfolio under her former variable annuity were higher than the historical returns for the same periods concerning the proposed mutual fund portfolio under the new variable annuity recommended by Werner. Therefore, Werner recommended an unsuitable variable annuity exchange to the customer without having a reasonable basis to believe that the transaction was suitable.

Decision

Bar (Permanent)

All Capacities

indefinite

12/26/2017

Civil and Administrative Penalty(ies)/Fine(s)

$80,000.00

Disgorgement

$10,030.00

Restitution

$155,393.61

Extended Hearing Panel Decision rendered November 6, 2017. The sanctions were based on findings that Werner churned and excessively traded three accounts belonging to his customer, an elderly, blind, and in poor health customer. The findings stated that Werner's trading caused the customer to lose more than $175,000. Werner churned the customer's accounts in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 and in violation of FINRA Rules 2020 and 2010. Werner knew that his trading was costing the customer a large amount of money yet he persisted in excessively trading her accounts and charging her unreasonable commissions. Within three years, even after taking into account the customer's withdrawals, Werner depleted the customer's two IRA accounts. This led him to have the customer open a third brokerage account, the Investment Account, funded with a VA withdrawal so that he could continue to trade. The amount of commissions that Werner generated further demonstrates that he acted with scieniter. The $210,586 in commissions over three years was an important source of income for Werner that helped him pay his substantial tax liabilities and living expenses. The level of trading he engaged in, combined with the inappropriate commissions he charged, made it unreasonable for Werner to expect that he could earn a profit in the customer's accounts, as he claimed. Based on the outrageously high turnover rates and cost-to-equity ratios for the customer's accounts, Werner had to have known he was not acting in the customer's interests. Werner recommended all of the transactions in her accounts and exercised control of her accounts. Werner engaged in aggressive, "in-and-out" trading, repeatedly purchasing securities and then selling them after relatively short holding periods to purchase other securities, for no apparent reason. Such in-and-out trading is a hallmark of excessive trading and churning. The findings also stated that Werner made an unsuitable recommendation that the customer surrenders an existing variable annuity to purchase another variable annuity. Werner recommended the unsuitable variable annuity exchange to the customer, without having a reasonable basis to believe that the transaction was suitable. In the customer's case, replacing the variable annuity with the other variable annuity caused her to incur additional expenses and fees and a new surrender period. The new product offered her no features that were better than the variable annuity that she owned. Therefore, this variable annuity exchange was unsuitable for the customer because of her age, financial needs, and likely medical expenses. Werner's member firm received a commission of $11,799.81 on the sale of the variable annuity, of which the firm paid Werner approximately $10,030. The decision became final December 26, 2017.

$80,679.96

Tax

$66,413.61

Tax

NATIONAL SECURITIES CORPORATION

Discharged

RR FAILED TO DISCLOSE SEVERAL LIENS AND JUDGMENTS.

TO THE BEST OF MY KNWLEDGE I WS AWARE OF THE DEBTS, BUT NOT AWARE OT THE FILINGS

$21,346.02

Tax

$36,149.00

Tax

$402,317.00

Tax

$159,802.00

Tax

AFFLECK CLAIMS I AS BRANCH MANAGER DID NOT ADVISE HIM OF THE RISKS OF INVESTING IN CONCENTRATED POSITIONS OF NASD SECURITIES

$412,636.35

$190,000.00

CUSTOMER WAS NOT MY CLIENT. CUSTOMER WAS A CLIENT OF ONE OF MY BROKERS. AS PART OF MY COMPLIANCE REVIEW CUSTOMER WAS INTERVIEWED ON A MONTHLY BASIS. CUSTOMER WAS ALWAYS WARNED BY MYSELF AS TO HIS TRADING STYLE.I WAS DISCHARGED FROM THE COMPLAINT WITH NO ASSESSMENT ON MY PART WITH PREJUDICE.

ROBERT THOMAS SECURITIES

Discharged

ALLEGEDLY TOOK 4 CLIENTS ORDERS BEFORE HE WAS FULLY REGISTERED WITH RTS, BUT RECEIVED NO COMMISSIONS FROM THEM. THIS IS A DIRECT VIOLATION OF RTS' INTERNAL POLICY & PROCEDURES. COMMISSIONS WITHHELD AND TERMINATED.