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James McGehee Barred for High-Risk Options Trading Allegations

Time and time again, we are reminded, as Robert Rolih says, “your financial advisor is probably not your friend”. This statement rings true as we delve into the recent allegations of risky options trading brought against advisor James W. McGehee. The allegation’s seriousness is highlighted by the sweeping damage done to his clients’ accounts—showing a grim reality for investors entrusting their hard-earned money to someone supposed to protect and grow their financial interests.

Understanding the Allegations against James McGehee

Allegation’s Seriousness and Effect on Investors

The Specter of Risky Options Trading

Investment News reports that James W. McGehee’s unorthodox and high-risk trading strategy allegedly stifled clients’ accounts, causing drastically severe losses. One unsettling instance is the reported case of a 76-year-old retiree, whose account nosedived from a hopeful $205,000 to a mere $18,000 over 18 months—largely attributed to McGehee’s advised options trades.

An Enormous Number of Trades

– Managed assets totalling $3 million for 20 clients.
– Engaged in approximately 11,000 trades.
– Out of these, a staggering approximately 90% were options trades.

Violation of the Colorado Securities Act

Deemed guilty of contravening the Colorado Securities Act, McGehee ostensibly committed investment advisor fraud—failing to disclose the precise risks and the suitability of his unusual options strategy to his clients.

Peering into the History of James McGehee

The Financial Advisor’s Background, Associated Broker Dealer, and any Past Complaints

To put the incident involving James McGehee into perspective, it’s necessary to take a closer look at his career history. McGehee was associated with notable brokerage firms and registered investment advisory firms during his stint in the securities industry. These included, the Wheat Ridge, CO-based McGehee Wealth Management Inc and Denver, CO-based Waddell & Reed.

Taming Financial Complexities and FINRA Rules

A Simple Explanation of the FINRA Rule

The Financial Industry Regulatory Authority (FINRA) rule mandates financial advisors to discuss potential risks and opportunities of any suggested financial strategy with their clients. The advisor’s obligation extends beyond offering investment products. They must document their clients’ financial objectives, risk tolerance, and other factors, thereby ensuring the recommended investment strategy aligns with the client’s individual financial needs and expectations.

The Fallout and Lessons Admonished

Consequences and Lessons Learned

The McGehee case indisputably underscores the importance of investor education and vigilance. In the aftermath of this upsetting incident, McGehee has been barred from the securities industry in Colorado, and his clients now face an arduous process of financial recovery.

Worryingly enough, Investment News reveals that “almost 7% of advisors have misconduct records” – a statistic that reinforces the importance of due diligence when entrusting your financial future to an advisor.

Overall, the episode serves as a wake-up call for investors. Financial advisors, like James McGehee, are duty-bound to their clients – tasked with transparently outlining investment risks, and only recommending options that fit within the client’s comfort level and financial goals.

But, end of the day, it’s essential to remember that your financial journey is yours, and you should feel confident in every decision you make, because, as Benjamin Franklin once said, “An investment in knowledge pays the best interest.”

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