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Daniel G. Maughan, while associated with Financial West Group churned and excessively traded a customer’s trust account. From October 2010 through January 2015 , Maughan executed approximately 1,648 trades, with a principal value of all purchases and sales in excess of $70 million, in the account.
FINRA brought suit concerning these actions in August 2019.
The account owners were unsophisticated. Both had a high school degree with a small amount of junior college. The husband had been unemployed as a plumber for approximately two years. The wife had only part-time employment as a bookkeeper. When they inherited the funds they advised Maughan to invest conservatively.
The annualized cost-to-equity ratio—the percentage the account had to appreciate to break even—was 21.06. Maughan’s churning and excessive trading was quantitatively unsuitable and generated commissions and costs totaling approximately $841,000 while causing the account to incur realized and unrealized losses of approximately $812,000.
During the Relevant Period, Maughan also recommended overly aggressive and unsuitable trades in the IFT Account involving: (a) options and (b) non-traditional Exchange-Traded Funds (“ETFs”) and an Exchange Traded Note (“ETN”).
By churning the IFT Account, Maughan willfully violated the Securities Exchange Act of 1934, and a multitude of FINRA Rules.
In 2009, Wedbush Morgan was sued, via arbitration, for Maughan’s recommendation of overly aggressive ETFs and aggressive stocks to an investor. This matter settled for the payment of $10,000.
Merrill Lynch, a previous employer, was sued in 2002 over allegations that Maughan churned the portfolio of an investor, along with making other investments in overly aggressive investments without authorization. Merrill Lynch settled this matter for $46,000.
In 2001, an arbitration suit was filed against Merrill Lynch. The suit alleged that Maughan made unauthorized purchases in the account of a mentally incompetent adult, and that the client could not comprehend any conversation concerning the investments in question. This matter settled for $51,321.
Merrill Lynch terminated Maughan in 2001 for this sale. Maughan has stated that he made “several errors” in the sale of the investment.