Initiated By
FINRA
Allegations
King was named a respondent in a FINRA complaint alleging that he willfully violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder by making fraudulent misrepresentations and omissions to customers of his member firm in connection with the sale of Unit Investment Trusts (UITs). The complaint alleges that King misrepresented to the customers, who were all retirees, that he would use their investment funds to purchase safe, no-risk bonds, and that he would not charge any fees or commissions on the transactions. In reality, King used the customers' funds to purchase UITs, resulting in approximately $17,000 in realized losses to the customers (and approximately $43,000 in unrealized losses) and approximately $38,000 in commissions to him. King further failed to provide the customers with prospectuses for their UIT's, as required by the firm's procedures. The complaint also alleges that King engaged in a pattern of short-term trading in long-term investment products in the accounts of customers. This pattern of trading was excessive and unsuitable, and resulted in approximately $163,000 in losses to the customers, while King generated gross commissions of approximately $210,000. The complaint further alleges that King exercised discretion in the accounts of customers without their written authority, or the approval of his firm.
Resolution
Decision
Bar
Bar (Permanent)
Registration Capacities Affected
All capacities
Duration
Indefinite
Start Date
7/20/2017
Regulator Statement
Default decision rendered June 9, 2016, wherein King was barred from association with any FINRA member in any capacity. The sanction was based on findings that King fraudulently misrepresented and omitted material facts to customers, recommended and executed unsuitable transactions in customer accounts, and exercised discretion in customer accounts without authority and his member firm's approval. The findings stated that King violated Section 10(b) of the Exchange Act and Rule 10b-5, FINRA Rule 2020, and NASD Rule 2120 by making material misrepresentations and omitting material information, in connection with the purchase or sale of a security. King used telephone and email to willfully make numerous false statements to customers and omitted material information in connection with his sales of UITs to the customers. King sold UITs to elderly and retired customers of the firm by misrepresenting to them that he was offering safe, high-yield, tax-free bonds and CDs and omitting material information about the products that he actually sold to the customers. King failed to inform them that UITs invest in a fixed portfolio of securities that are held until a pre-established termination date and are not actively traded, may be illiquid through the termination date, and are subject to market risk and loss of principal. Additionally, King failed to disclose to the firm's customers the sales charges and costs associated with the UITs that they purchased or affirmatively misrepresented to them that he would not charge commission. King recommended bonds to his customers, but instead purchased UITs that possessed features that he failed to disclose. King's received $38,000 in commissions from these sales. The findings also stated that King engaged in excessive and unsuitable short-term trading of long-term investments, such as UITs and closed-end funds (CEFs), in the accounts of his firm's customers. The customers, three of whom are retired, had growth or conservative growth investment objectives and moderate risk tolerances. King's frenetic trading was inconsistent with their objectives and financial circumstances and resulted in customer losses of approximately $163,000. King's misconduct resulted in his monetary gain of approximately $210,000 in commissions. King did not have reasonable grounds to believe that the number of CEF and UIT transactions that he executed in the firm's customer accounts was not excessive. The findings also included that King exercised discretion in the accounts of his firm's customers by effecting trades in their accounts, including transactions involving UITs and CEFs, without obtaining prior written authorization from those customers. King also failed to obtain the firm's written acceptance of the accounts as discretionary. On June 20, 2016 the Default Decision was appealed to the National Adjudicatory Council (NAC) and the sanction is not in effect pending the appeal.
NAC Decision rendered July 20, 2017 wherein the NAC affirmed in part and reversed in part the findings, and affirmed in part and vacated in part the sanctions imposed by the Hearing Panel Decision. The NAC affirmed the Hearing Officer's findings that King excessively traded the accounts of customers and that he exercised discretion in the accounts of customers without written consent or approval. The NAC reversed the Hearing Officer's findings that King engaged in fraud, in violation of Section 10(b) of the Exchange Act and Rule 10b-5, FINRA Rules 2010 and 2020, and NASD Rules 2110 and 2120, and that he made unsuitable recommendations to customers. The NAC bars King for the excessive trading and declines to impose additional sanctions for the improper exercise of discretion in customer accounts. The NAC vacates the bars imposed on King for the fraud and unsuitable recommendations. The bar is in effect as of July 20, 2017. The decision became final on August 22, 2017.
