Two brokers formerly registered with
Ameriprise Financial Services Inc. were fined and suspended Monday by the
Financial Industry Regulatory Authority Inc., in part due to securities industry rule violations involving customer transactions using margin.
According to the Securities and Exchange Commission, investors use margin when borrowing money from brokers to buy a stock, using the investment as collateral. Investors generally use margin to increase their purchasing power so they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses.
In one settlement, the broker, Jack McBride, in 2014 allegedly wrote four checks to a client totaling close to $12,800 to reimburse the customer, who had complained about margin interest charges after the execution of trades in his accounts were botched, according to Finra. Mr. McBride did not initially disclose the customer's complaints or his payments to the client,
according to the Finra settlement.
Mr. McBride, who was registered with Ameriprise from 2009 to 2014, was suspended from the securities industry for 40 days and fined $12,500.
In the other case, Stuart Pearl allegedly made unsuitable recommendations in a client's account when he advised the customer to use margin, according to Finra. Between September 2011 and March 2012, Mr. Pearl recommended two retired clients in their 70s buy four securities worth $122,000 on margin,
according to Finra.
The clients had a risk tolerance of conservative to moderate and limited experience trading on margin, according to Finra. Their combined annual income totaled $30,000 and their liquid net worth was $500,000.
Prior to those purchases, the clients had no margin debt, and as a result the two retirees "experienced a significant increase in their margin debt balances in relation to their available funds and their account was subject to seven margin calls," according to the Finra order.
Registered with Ameriprise from 2010 to 2015, Mr. Pearl was suspended from the securities industry for 45 days and fined $7,500.
Both the former Ameriprise reps accepted the Finra settlements without admitting or denying Finra's findings.
An Ameriprise spokeswoman had no comment. Both reps were discharged by Ameriprise and are currently working at new firms.
An attorney for Mr. Pearl, Douglas Hyman, declined to comment. Mark Kowalsky, an attorney for Mr. McBride, did not return a call to comment.
