Today, the Texas State Securities Board (TSSB) announced in a Disciplinary Order the suspension of Jason Anderson, a broker from Beaumont, Texas formerly working in the last two years with each of LPL, Kovack Securities, IFS Securities, and since March of 2017, was seeking registration as an investment adviser with IFS Advisory, LLC (later withdrawn), and then went on to seek registration as an investment adviser with Financial Management Services of America, LLC. Last year, Mr. Anderson was “indefinitely” suspended by FINRA for failing to comply with an arbitration award, pay a settlement, and/or failing to tell FINRA about the status of that award. Mr. Anderson has been very busy—-why? Some of the answers may be found in Mr. Anderson’s BrokerCheck, which reveals a rather concerning string of customer complaints and other problems. So, is Mr. Anderson suspended? Yes as a FINRA broker, and yes in the State of Texas, just not for long.
Well, while Mr. Anderson was with LPL between 2007 and February 2016, and perhaps while at the subsequent firms, Mr. Anderson was recommending to many of his clients an active trading program pursuant to a technical analysis. The Texas State Securities Board called the trading program the “Equity Strategy.” Similarly, there have been a number of customer complaints, and even a lawsuit filed against Mr. Anderson for his practices with his customers.
Mr. Anderson’s, and hence LPL’s, Equity Strategy involved actively trading stocks based apparently on Mr. Anderson’s belief in his prescient technical analysis. The Texas State Securities Board stated that Mr. Anderson “did not consider the trading costs, which included commissions…or the impact that such costs would have on the rate of return the Equity Strategy would need to earn to generate a positive return for a client.” The TSSB noted that for one client, the costs were 30%, meaning that in order for the client to breakeven, the Equity Strategy would have to earn 30%–no small feat for an investor with a moderate risk tolerance! Not surprisingly, the TSSB concluded that Mr. Anderson did not have a reasonable basis to believe that the Equity Strategy was suitable for his clients because of his disregard of the trading costs (his own commissions), and thus such practice was deemed by the TSSB to be “inequitable practices in the sale of securities” and it suspended Mr. Anderson’s registration. Hmmm…
So, Mr. Anderson has been indefinitely suspended by FINRA for possibly failing to pay back an award, and the State of Texas has suspended him for 90 days. So far, so good…a broker with a history of customer complaints and failing to determine suitability (or that his commissions caused a client to require a 30% profit to breakeven), and maybe failing to pay an award, is kicked out of the business by our regulators, thus saving future customers from further unsuitable recommendations and inequitable practices. Right? But at the same time that Texas suspended his registration (for 90 days), Texas granted his registration as an adviser……Huh? Looks like Mr. Anderson will be at it again, in 90 days.
A few things come to mind in reviewing the TSSB Order. First, it seems clear that the TSSB found Mr. Anderson to have violated the State Securities Act by failing to make suitable recommendations, and no doubt Texas knew that Mr. Anderson had been “indefinitely” suspended by FINRA, but the TSSB granted Mr. Anderson’s registration to provide investment advice. Strange, and concerning. Second, there is no mention and brief research does not reveal where any of Mr. Anderson’s customers, who were recommended an unsuitable strategy were compensated by either Mr. Anderson or LPL, or whatever firm was at the time responsible for supervising Mr. Anderson and his Equity Strategy. Begs the question— are the customers that were victimized due any compensation because of the “inequitable practices in the sale of securities”? Finally, this seems to exemplify a trend where brokers that are “indefinitely suspended” and otherwise reprimanded by our regulators, are able to continue to provide investment advice to investors. Of course, as a registered investment adviser Mr. Anderson will be held to a fiduciary duty under the law, but if he can’t do good for his clients when he is not a fiduciary, why would one think he will do better when he is a fiduciary?
Fundamentally, Mr. Anderson is duty bound to only recommend suitable investments for his clients, and of course, should consider the suitability of the impact of costs and commissions on his recommended strategy. But, as inferred by FINRA’s release, when held accountable, it seems Mr. Anderson would not pay. However, Mr. Anderson may not be the only person who breached a very important duty. Each of Mr. Anderson’s employing broker dealers have the duty to supervise Mr. Anderson, to make sure that he is recommending suitable strategies to his clients, and if and when a brokerage firm fails to adequately supervise their brokers, they can be held directly liable for such failure, just as they can be held liable as the employer for Mr. Anderson’s breaches and failures.
We are going to dig further into Mr. Anderson’s history and see what may be the real story. If you have any questions about why these customers weren’t provided their due compensation, or if you are a customer that believes you may be due compensation, please contact the Forman Law Firm, PC, and we will be happy to share the results of our investigation, and let you know if you have anything to be concerned about.