If you have suffered investment losses with First Financial Equity Corp. (“FFEC”) please call for a free consultation with an attorney at 1-866-817-0201. Recent actions of FINRA, the financial industry regulator, indicate that investors may have been harmed by the actions of this firm.
FFEC and its chief compliance officer entered into a settlement with FINRA regulators on March 8, 2017 concerning the lapses in supervision. The alleged lapses allowed a variety of different fraudulent activity to occur throughout FFEC and in particular the Scottsdale, Arizona branch. FINRA asserted that the chief supervisor of FFEC, the chief compliance officer, had not adequately supervised and that the firm did not have adequate supervisory procedures.
The most obvious result of the lack of supervision is the 26 customer complaints of broker John Schooler. These complaints, many of which evolved into arbitration lawsuits, involved his inappropriate trades in oil & gas investments and TIC investments.
One issue alleged to be a result of the inadequate supervision is the sale of unsuitable ETFs. Unsuitable securities are those which are not consistent with the wants and needs of an investor. Usually, an investment is unsuitable if it puts at risk funds not earmarked for risk, or otherwise is inconsistent with who the client is as an investor.
In the case of FFEC, its brokers recommended and invested its customers in aggressive ETFs, including leveraged and inverse ETFs. Such investments are known to be high risk, yet the brokers recommended the investments to individuals who did not express a desire for high risk investments. Worse, many of these investments were purchased by the FFEC brokers for accounts where the brokers were given discretion and not given the required supervisory review.
To ensure suitability, FFEC brokers were required to obtain sufficient information about their investors to evaluate the investments that would be suitable. The settlement states that this was not done.
Another issue alleged to have been caused by the lack of supervision is churning/excessive trading. This occurs any time trades are made which the costs and fees are of an amount that the trades benefit the adviser more than the investor.
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