NASD Charges Three Brokers with Suitability Violations for Recommending Investment Purchases Using Mortgage Proceeds
Washington, D.C.—NASD announced today that it has taken separate enforcement actions against three brokers for making unsuitable recommendations to customers, urging them to purchase investments using proceeds obtained from cash-out home mortgage refinancing. NASD also issued today an Investor Alert to help highlight the dangers associated with mortgaging a home to fund investments. NASD is concerned that investors who purchase investments with mortgage proceeds and use their investment returns to make the mortgage payments could default on their home loans if their investments decline and they are unable to meet their monthly mortgage payments. Investors can learn more about the risk of the use of mortgage proceeds for investing by reading, Betting the Ranch: Risking Your Home to Buy Securities (http://www.nasd.com/investor/alerts/alert_betting_ranch.htm).
Today's enforcement actions include two settlements and the filing of a complaint:
- James A. Kenas, of Coeur d'Alene, ID, and formerly a registered representative with WMA Securities, Inc., was suspended for 6-months for violating NASD's suitability rule by recommending that his customers purchase mutual fund shares, when the only funds available to those customers for the purchases were from mortgaging their home.
- Steve C. Morgan, of Loveland, CO, and a registered representative associated with Washington Square Securities at the time of conduct, suspended for 6-months and ordered to pay restitution to customers of more than $15,000, which must be paid to the customers before he re-enters the securities business. NASD found that Morgan recommended that a retired couple purchase a variable annuity even though they were financially unable to make the purchase except by mortgaging their home.
- Jamie A. Engelking, of Denver, CO, and a registered representative formerly associated with First Union Securities, was charged in a complaint with recommending the purchase of a variable annuity using mortgage proceeds which were the only funds available for the investment.
"A recommendation by a securities firm or a broker that an investor mortgage his home to buy securities raises all kinds of regulatory red flags", said Mary L. Schapiro, NASD's Vice Chairman. "NASD will always ask whether it is appropriate to recommend that you risk your home to seek investment returns."
Under NASD rules, an individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, order to pay restitution, censure, suspension or bar from the securities industry.
In settling these charges, Kenas and Morgan neither admitted nor denied the allegations.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business—from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.