The Texas State Securities Board has banned a broker from recommending alternative investments, including nontraded real estate investment trusts, after the broker loaded up a client with too many of those investments.
The broker, Mickey Long, was hit with the sales ban on alternative investments Tuesday. Texas ordered him suspended for 45 days and then put on heightened supervision for two years by his firm, Calton & Associates Inc.
He is not banned from the industry but ordered by Texas not to sell alternative investments such as nontraded REITs.
High-commission products like nontraded REITs have drawn attention the past few years from regulators, who have asked questions about those products' fees and transparency.
“The agent recommended that a client invest in certain alternative investments, namely nontraded REITs and private offerings of interests in oil and gas entities,” according to Mr. Long's CRD or central registration depository profile. “The client had elected within the client's account opening documents to have no more than 20% allocated to the 'highest risk/aggressive' risk tolerance level and no more than 60% allocated to the 'highest risk/moderate' risk tolerance level.”
According to the Texas order, Mr. Long put nearly 36% of the client's invested assets into the former category and 78% into the latter [assuming some overlap between the categories].
Mr. Long “did not have a reasonable basis to believe that the recommendations exceeding the client's identified risk tolerance concentration levels were suitable for the client,” according to the CRD. “The unsuitable recommendations constituted inequitable practices in the sales of securities.”
Mr. Long also shall not recommend nontraded business development companies as well as private offerings.
Mr. Long did not return calls Thursday to comment.
Mr. Long joined Calton & Associates in June. Prior to that, he was registered with VSR Financial Services Inc. for 14 years. Owned by Cetera Financial Group, VSR, which was known for selling alternative investments, is being consolidated with another Cetera firm, Summit Brokerage Services Inc. Not all of the VSR brokers are being offered jobs with Summit.
“For more than 29 years Calton & Associates Inc. has scrutinized, very carefully, the advisers they have chosen to affiliate,” said spokesman Chris Radford. “This adviser, Mickey Long, was registered based on the condition that he transition the appropriate business to advisory services and not offer any alternative investments.”
According to his CRD, Mr. Long has been the subject of five customer complaints that totaled $460,900 in awards to clients.
One plaintiff's attorney wondered why Texas focused only on alternative investments in the matter.
“The only thing I can see as being analogous is a broker being barred from selling penny stocks, which we see from time to time,” Scott Silver said. “This is a bizarre way to respond to the question of a problem broker.”
Robert Elder, a spokesman for the Texas State Securities Board, said the regulator had no comment beyond its order from Tuesday.