As a former financial advisor and legal expert with over a decade of experience in both sectors, I’ve seen my fair share of misconduct and unauthorized trading complaints. The recent allegation against Gene Webb, a Portland-based financial advisor with Paulson Investment Company, is a serious matter that deserves close attention from investors and industry watchdogs alike.
According to the complaint filed in July 2024, Mr. Webb allegedly made unsuitable investment recommendations and unauthorized purchases in connection with private equity investments while representing Paulson Investment Company. The pending complaint alleges unspecified damages, which could potentially impact the firm’s reputation and bottom line.
As an investor, it’s crucial to understand the gravity of such allegations. Unauthorized trading occurs when a broker makes trades in a client’s account without obtaining prior consent, violating the trust and fiduciary duty owed to the client. This type of misconduct can lead to significant financial losses and erode the confidence in the financial advisory industry as a whole.
It’s worth noting that this isn’t the first complaint against Mr. Webb. His BrokerCheck report reveals multiple investor complaints dating back to 2018, including allegations of misrepresentation, failure to execute customer orders, and unauthorized trading. In one settled complaint from 2019, Mr. Webb defended himself, stating that he “strongly disagree[d] with the allegations made by the client” and believed the client had misunderstood a conversation regarding a potential sale.
The Financial Advisor’s Background and Broker Dealer
Gene Webb boasts an impressive 35 years of experience in the securities industry. Based in Portland, Oregon, he has been registered as a broker with Paulson Investment Company since 2016. Prior to that, he held registrations with several other firms, including:
- GVC Capital (2005-2015)
- Kashner Davidson Securities Corporation (2002-2005)
- VFinance Investments (1993-2002)
- Paulson Investment Company (1992-1993)
- Livingston Securities (1988-1992)
Mr. Webb has passed four securities industry qualifying exams and holds 53 state licenses, demonstrating his extensive knowledge and qualifications. However, the multiple complaints against him raise concerns about his professional conduct and adherence to FINRA rules.
Understanding FINRA Rules and Unauthorized Trading
FINRA, or the Financial Industry Regulatory Authority, is a self-regulatory organization that oversees broker-dealers and their registered representatives. FINRA Rule 2010 requires brokers to observe high standards of commercial honor and just and equitable principles of trade. Engaging in unauthorized trading is a clear violation of this rule.
In simple terms, unauthorized trading is when a broker buys or sells securities in a client’s account without obtaining the client’s permission beforehand. This can happen if a broker misinterprets a conversation as an order, acts on a misunderstanding, or deliberately disregards a client’s wishes for their own benefit.
Under FINRA rules, brokers must have a client’s express authorization before making trades in their account. This authorization can be provided verbally or in writing, depending on the firm’s policies. However, even if a client has given their broker discretionary authority over their account, the broker must still act in the client’s best interests and follow their stated investment objectives.
Consequences and Lessons Learned
The consequences of unauthorized trading can be severe for both the client and the broker. Clients may suffer significant financial losses, while brokers can face disciplinary action, fines, and even the loss of their licenses. Firms may also be held liable for their brokers’ actions, leading to reputational damage and legal costs.
As the famous investor Warren Buffett once said, “Risk comes from not knowing what you’re doing.” This applies not only to investors but also to financial advisors. Brokers must thoroughly understand their clients’ needs, communicate clearly, and always obtain proper authorization before executing trades.
Interesting fact: According to a 2020 study by the Securities Arbitration Commentator, unauthorized trading was the third most common allegation in FINRA arbitration claims, accounting for 13.4% of all cases.
The case of Gene Webb serves as a stark reminder of the importance of due diligence when selecting a financial advisor. Investors should carefully review an advisor’s background, including any past complaints or regulatory actions, before entrusting them with their hard-earned money. By staying informed and vigilant, investors can help protect themselves from falling victim to unauthorized trading and other forms of misconduct in the financial industry.
