Tags: FINRA | independent broker-dealers

A rep who worked with Summit Brokerage Services for about four years has been let go pending the results of a probe into his client dealings.

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According to FINRA, Summit -- based in Boca Raton -- is investigating a former affiliate, Timothy Cochrane of Eureka, Kansas, for reportedly misappropriating funds from client accounts.

Cochrane was let go on March 10. Since then, his clients have been reassigned to another Summit rep and it looks like his website has been hastily taken down.

As yet, no charges have been filed.

Tags: sec

Another sad report of advisors allegedly using new clients' savings to pay their own expenses. If the SEC's claims in this one are true, it's especially grotesque.

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The SEC  argues that over nearly three years, the Richmond, Virginia firm operated by Nicholas Skaltsounis sold at least 74 investors around $7.7 million in self-issued stocks and bonds.

These securities carried claims of 9% to 12.5% annualized returns, but do not appear to have paid off for any of the investors -- most elderly -- who bought in.

Redemptions were apparently paid out from incoming flows.

What makes this story disturbing is the relatively small size of the payout for the firm.

Legitimate advisory shops can generate $7.7 million over three years without having to sell dubious securities -- an RIA could maybe do it with a little over $200 million in AUM -- so this is no Madoff-style ultimate temptation here.

But Skaltsounis reportedly paid himself $950,000 and used another $3.6 million to keep his companies from going bankrupt, so the scheme maybe generated "production" of $1 million a year.

And while the average account size was about $100,000, a lot of these clients were elderly retirees in places like rural Tennessee without much money to spare. They lost just about everything here.

Tags: FINRA

Again and again, advisory firms are getting punished for having sold non-experts products too complex for anyone to understand intuitively.

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Today's instruments of trouble are reverse convertible securities -- and structured products in general.

Puerto Rico-based Santander Securities just got slapped with a $2 million fine for not only selling these complicated investments into client accounts, but doing so in quantities that created concentrated positions.

Many clients can understand the basics of how the global stock markets operate and how bonds work. They know what cash and real estate are.

But just about everything else is probably too complicated to assume they understand. 

And once upon a time it might have been enough for the regulators to provide a 10-second overview of the benefits of an alternative instrument -- "cuts your risk and improves your overall returns" -- that clearly isn't enough for the regulators today.

A lot of client education is needed here.

More fines for firms and individual brokers who sold the investment products that ended up dragging Securities America into the courts and eliminated other broker-dealers entirely.

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It looks like FINRA went down the list of brokers who sold debt from Medical Capital, Provident Royalties, and other issuers in order to distribute penalties across the board.

Individual fines are smaller than the massive sum that recently looked like it would cripple Securities America, the largest seller of these products. But with several of the brokerage firms that sold the stuff already defunct, it remains to be seen whether it could trigger another wave of bankruptcies.

Once again, FINRA notes a lack of due diligence in determining suitability of these products for these brokers' individual clients.