James Holmes settled allegations of FINRA, the Financial Industry Regulatory Authority, that he brazenly falsified documents to allow him to churn an investment account.
Between October and December 2021, Holmes recommended options transactions to an investor with a conservative investment profile. The investor had an income objective and could not afford to lose principal. As such, Holmes made the transactions without having a reasonable basis to conclude that the transactions would be in the customer’s best interest or suitable based on her investment profile. To accomplish this, Holmes inaccurately stated on account opening documents the investor’s financial circumstances, investment experience, and investment objectives.
Holmes also churned the accounts of many of his investors. He made trades without the appropriate permission in at least five customers’ accounts to effect at least 250 trades.
FINRA Rule 2360 prohibits such an action. That rule provides that the option must be suitable for the investor after reasonable inquiry. Section (19) of that rule specifically states, “that the recommended transaction is not unsuitable for such customer” after analysis financial situation and objectives of the investor.
Further, the action is in violation of SEC Regulation BI. That rule requires that the broker put the financial interests of his clients ahead of his own. Here, Holmes made substantial commissions not only by making trades clients never authorized, but by treating the portfolios as more aggressive that authorized. An aggressive portfolio is more lucrative to a broker than a conservative portfolio.
Holmes first entered the securities industry in October 1991 through an association with a FINRA member firm. In August 2019, Holmes registered with FINRA as a General Securities Representative through an association with Wells Fargo.
The settlement is not an admission of wrongdoing but is also not an exoneration of these substantial charges. FINRA suspended Holmes for eight months from the securities brokerage industry and fined him $10,000. Wells Fargo also faces a $500,000 customer dispute concerning such actions of Holmes.
Jeffrey Pederson has successfully represented hundreds of investors in similar actions for over 20 years. Call for a free and confidential consultation if you have suffered loss due to churning or suitability violations.
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