Cadaret Grant & Company Fined For Sale of Unsuitable Securities
Cadaret, Grant & Co., Inc., a brokerage firm headquartered in Syracuse, New York, and its former registered representative, Charles Lee Deremo, of Eagan, Minnesota, have been censured and fined by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that Deremo made unsuitable investment recommendations to a firm customer, and the firm failed to supervise Deremo’s activities in this regard. Letter of Acceptance, Waiver and Consent, No. 2013038424401 (Jan. 17, 2017).
According to the AWC, from May of 2011 to November of 2013, investment strategies had been recommended by Deremo to JL, who was a seventy-nine-year-old Cadaret, Grant & Co. customer. Particularly, in 2010, JL was advised by Deremo to exchange an existing variable annuity into another variable annuity in order for Deremo to invest JL’s funds in precious metals. The AWC stated that Deremo intended to move all of JL’s assets between the money market subaccount and the precious metals subaccount based upon Deremo’s analysis of market conditions. Apparently, gold prices played a substantial role in the decisions made by Deremo to purchase and sell positions in the precious metals fund.
The AWC indicated that from May of 2011 to August of 2012, the variable annuity monies in JL’s account had been moved by Deremo between the money market and the precious metals fund every other month. Subsequently, in August of 2012, JL’s annuity funds were reportedly moved by Deremo into a leveraged subaccount. JL’s monies were then reportedly transferred from the leveraged subaccount into the precious metals subaccount in January of 2013.
Apparently, Deremo’s trading persisted from April through June of 2013, where he effected transfers of JL’s assets between the money market and the precious metals fund on three occasions. Ultimately, the strategy pertaining to precious metals investing was no longer utilized by Deremo after June of 2013. The AWC revealed that in July of 2013, Deremo’s trading authority had been taken away by JL.
FINRA determined that the trading strategy utilized by Deremo was unsuitable in several ways. Specifically, the AWC indicated that as a retiree, JL relied upon withdrawals to be effected from his variable annuity for purposes of covering his living expenses. FINRA stated that the approach Deremo took was very speculative, as it consisted of concentrating JL’s assets heavily in a volatile sector. Evidently, this strategy failed to conform with JL’s objectives for investing, which consisted of growth and income.
The AWC revealed that JL’s entire investment portfolio with Deremo, which consisted of half of JL’s net worth, had been invested pursuant to Deremo’s precious metals strategy. Consequently, FINRA found that Deremo’s conduct was violative of FINRA Rules 2111 and NASD Rule 2310. Deremo was fined $5,000.00 and suspended from associating with any FINRA member in any capacity as a result of his misconduct.
FINRA additionally cited Cadaret, Grant & Co., Inc. for failing to supervise Deremo’s activities. Particularly, written supervisory procedures had not been enforced by the firm pertaining to the review of transactions effected by registered representatives for detection of unsuitability. The AWC stated that no suitability review had been adequately conducted by the firm; the firm did not detect that the basis of Deremo’s recommendations was not appropriate for JL based upon the risk tolerance and investment objectives communicated by Deremo to JL. FINRA found that the firm’s conduct was violative of FINRA Rule 2010 and NASD Rule 3010(b). Consequently, Cadaret, Grant & Co., Inc. was censured and fined $10,000.00.
The AWC revealed that Cadaret, Grant & Co., Inc. has been previously censured for related misconduct. Particularly, the firm was censured and fined $200,000.00 by FINRA based upon consenting to findings that from May of 2006 to September of 2008, the firm made nineteen unsuitable variable annuity recommendations, did not adequately supervise the activities of its registered representatives regarding them, and failed to create and implement supervision systems and procedures which were designed to address suitability of variable annuity transactions. Letter of Acceptance, Waiver and Consent (Dec. 2011). The AWC stated that Cadaret, Grant & Co., Inc. was found by FINRA to have violated NASD Rules 2110, 3010, 2821, and 2310 as a result.
FINRA Public Disclosure reveals that Deremo has been identified in four customer initiated investment related disputes containing allegations of Deremo’s misconduct while employed with Cadaret, Grant & Co., Inc. and Royal Alliance Associates. Particularly, on September 13, 1995, a customer initiated investment related arbitration claim involving Deremo’s conduct was settled for $50,000.00 in damages based upon allegations that Deremo effected unsuitable and unauthorized precious metal fund transactions in the customer’s account, and breached his fiduciary duty to the customer. The customer additionally alleged that Royal Alliance Associates failed to supervise Deremo’s activities.
Subsequently, on November 22, 2013, a customer filed an investment related written complaint pertaining to Deremo’s activities based upon allegations that Deremo effected variable annuity transactions in the customer’s account which were not suitable for the customer. On June 26, 2014, another customer filed an investment related arbitration claim involving Deremo’s conduct, in which the customer requested $250,000.00 in damages based upon allegations that Deremo breached his fiduciary duty to the customer, and effected unsuitable mutual funds transactions in the customer’s account.
Additionally, on September 21, 2015, a customer initiated investment related written complaint regarding Deremo’s activities was settled for $84,378.00 in damages based upon allegations that Deremo effected unsuitable annuity transactions.
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