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On October 18, 2019, the Financial Industry Regulatory Authority (FINRA) barred Mr. Mehringer from the securities industry when he failed to defend charges that he handled his investor accounts inappropriately.
Mehringer was previously named a defendant in a FINRA regulatory complaint, a legal action brought by the national regulatory body overseeing securities brokers, alleging that he made unsuitable recommendations that caused a customer to engage in excessively expensive short-term trading and intra-day switching of mutual fund Class A shares.
“Unsuitable” recommendations are recommendations of securities transactions or purchase of strategies that are inconsistent with the risk tolerance or investment objectives of an investor. They can also be when a broker makes trades with the objectives of increasing the broker’s commission. That is what happens with short-trading of mutual funds. The high commissions of mutual funds are repeatedly charged so that there is little to no chance for the investments to make a reasonable return. This is sometimes referred to as churning.
The FINRA complaint alleges that Mehringer repeatedly recommended, and caused the investor to engage in, short-term purchases and sales of 84 mutual fund Class A positions (involving the sale of shares within a year of purchasing them) in five of the customer’s accounts.
In 47 of the 84 purchase transactions, investors paid front-end sales loads ranging from four to five percent. All but 17 of these 84 mutual fund positions were held for less than six months, and approximately 35 of them were held for less than three months. Mehringer received $169,735 in commissions from the transactions. Mehringer recommended the short-term mutual fund trading and the intra-day mutual fund switching alleged above without reasonable grounds to believe that the recommendations were suitable for the investor.
Given the long-term nature of Class A mutual fund share investments, along with the costs and commissions incurred in connection with frequent trading and switching between the mutual funds and mutual fund families, Mehringer’s short-term trading was unsuitable for any customer. The complaint also alleges that Mehringer exercised discretion in the same customer’s accounts without obtaining the customer’s written authorization and his member firm’s approval to do so.
The actions of Mehringer are currently the subject of eleven arbitration suits brought by his investors against either him or his former employers.