As someone with extensive experience in both finance and law, I, Emily Carter, can greatly appreciate the complexity and potential challenges inherent in investing. Our discussion today revolves around a case that significantly impacts investors: allegations against two registered brokers, Barry Todd Eisenberg (Financial Industry Regulatory Authority or FINRA#: 2313107) and Philip Noto (FINRA#: 4837180), former employees of Alexander Capital, L.P.. This situation speaks to the gravity of the decisions you make as an investor and the people you trust with your financial future.
Allegations and How They Impact Investors
The serious allegations against these brokers are as follows: between July 2012 and September 2014, both Eisenberg and Noto failed to adequately supervise three representatives. This led to unsuitable investment recommendations, unauthorized trading, and account churning, which in turn caused customer harm.
- Unsuitable investment recommendations: When brokers suggest investments that aren’t suitable for their clients’ risk tolerance, investment goals, and financial situation. This can lead to significant financial loss for the investor.
- Unauthorized trading: This occurs when a broker makes trades without the consent or knowledge of the investor. It’s unethical, as it goes against the investor’s right to control what happens with their assets.
- Account churning: This is when a broker engages in excessive buying and selling of securities in a client’s account to generate commissions. This unethical practice can erode a substantial portion of the investor’s account through fees.
Benjamin Franklin once wisely said, “An investment in knowledge pays the best interest.” Indeed, being aware of such allegations underscores the importance of diligent research and maintaining open lines of communication with those who manage your investments. This awareness can protect you from the adverse effects of such negligent or malicious actions.
Financial Advisors Background and Past Complaints
In understanding these allegations, it’s necessary to delve into the backgrounds of both brokers and consider any history of impropriety. Unfortunately, bad financial advice is all too common – statistics show that there’s a 1 in 13 chance that you’ll come across a bad financial advisor in your search for investment guidance.
Roughly 20 years into their careers, both Eisenberg and Noto faced significant allegations. The Securities and Exchange Commission (SEC) issued settled Orders against the pair, along with their employer, Alexander Capital, citing failure to implement policies and lax compliance oversight.
Simplifying FINRA Rule 2111 – Suitability
FINRA Rule 2111 – Suitability is central to these allegations. In its simplest form, the rule is an ethical guideline that puts the investor’s best interests first.
FINRA Rule 2111 includes:
- Reasonable-Basis Suitability: Brokers must do due diligence to understand the investment and its potential risks before recommending it to any investor.
- Customer-Specific Suitability: Investments must align with the customer’s unique profile, including factors like risk tolerance, financial status, investment objectives, tax status, and so on.
- Quantitative Suitability: A measure to prevent account churning. Brokers must ensure trades aren’t excessive, given the customer’s profile.
Consequences and Lessons Learned
In response to the allegations, the SEC ordered Eisenberg and Noto to pay over $445,000 in penalties and imposed five years of administrative scrutiny on Eisenberg.
As investors, it’s crucial to glean insights from cases like this. Remember, the person advising you should be working in your best interest. Stay alert for practices such as frequent trading without explanation or investments that don’t align with your financial goals. Seek counsel if you suspect wrongdoing.
In conclusion, remember that you are the primary steward of your financial future. If something feels off, ask questions and seek assistance as needed. After all, it’s not only about growing your investment but also about safeguarding it.
