FINRA Suspends Berthel Stockbroker For Suitability

Jeffrey Paul Dragon, of Burlington, Massachusetts, a stockbroker formerly registered with Berthel, Fisher & Co. Financial Services, Inc., has been fined $50,000.00 and suspended for twenty-one months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity according to a FINRA Office of Hearing Officers Order Accepting Offer of Settlement containing findings that Dragon made unsuitable investment recommendations to customers and engaged in a short-term unit investment trust trading strategy that was not suitable for customers. Department of Enforcement v. Jeffrey Paul Dragon, Disciplinary Proceeding No. 2014039169601 (Jan. 8, 2018).

According to the Order, while Dragon was associated with Berthel, Fisher & Co. Financial Services, Inc., he made investment recommendations and effected trading of unit investment trusts on a short-term basis in a total of nineteen investment accounts owned by twelve of Dragon’s customers. The Order stated that Dragon’s trading persisted over two years, where he placed six hundred and sixty-six purchases of unit investment trusts involving eighty-four different unit investment trusts, seventy-three of which had been offered through Guggenheim Funds Distributors, LLC.

The Order stated that Dragon typically bought unit investment trusts when they were initially offered, where he then liquidated unit investment trusts prior to maturity, utilizing the proceeds to buy more unit investment trusts.

Apparently, in one circumstance, recommendations had been made by Dragon for AP, an eighty-one-year-old customer, to place one-hundred and seventy-seven purchases of unit investment trust positions throughout a two-year timespan. Evidently, four of the positions in unit investment trusts had only been held by AP for thirty-days, seventy-six positions had been held by AP for sixty days, eighty-nine were held by AP for ninety days, and only four had been held by AP for more than one-hundred and twenty days. Evidently, none of the one-hundred and seventy-seven positions were held until their maturities.

The Decision stated that in another circumstance, recommendations had been made by Dragon for AW, an eight-four-year-old customer, to place eighty-two purchases of unit investment trust positions in AW’s retirement and trust investment accounts. Apparently, two positions had been liquidated in under thirty days, twelve positions held by AW had been sold within sixty days, sixty had been held for no more than ninety days, and none had been held until their maturities.

The Decision stated that in one case, Dragon’s short-term trading of customer LL’s investments involved the repeated use of the customer’s funds to effect purchases of unit investment trusts, where each cycle of Dragon’s trading activities caused new sales charges to be incurred by LL. Particularly, a total of $33,801.00 had been invested by LL in a unit investment trust in January of 2013. Subsequently, LL reportedly sold the unit investment trust position and utilized the proceeds between May of 2013 and July of 2014 to effect six different sets of unit investment trust purchases. Consequently, over an eighteen-month period, customer LL’s $33,801.00 in funds were exposed to sales charges on seven occasions.

The Decision also stated that $19,559,666.00 worth of trading had transpired in customers’ accounts resulting from Dragon’s recommendations, wherein customers were assessed approximately three to five percent in sales charges for purchases. The Decision revealed that dealer concessions in customers’ accounts totaled $421,000.00, ninety percent of which was handed to Dragon for effecting customers’ unit investment trust transactions.

The Decision also stated that customers were deprived of breakpoint discounts as a result of Dragon’s unit investment trust recommendations. Specifically, Dragon was reportedly informed in 2013 and 2014 that customers would be able to receive a discount when $50,000.00 or more was utilized in the purchase of a unit investment trust. Yet, only three of the six-hundred and sixty-six unit investment trust transactions qualified due to the manner in which Dragon structured the transactions. Dragon reportedly intended on having customers not qualify for breakpoint discounts to boost his compensation. FINRA found his conduct in that regard to be violative of FINRA Rules 2010 and 2111.

FINRA Public Disclosure confirms that on June 16, 2006, a customer filed an investment related written complaint involving Dragon’s conduct, where the customer sought $10,000.00 in damages founded on accusations that Dragon failed to abide by the customer’s investment instructions. Moreover, on September 28, 2017, a customer filed an investment related written complaint regarding Dragon’s activities, alleging that Dragon made misrepresentations to the customer about unit investment trust, mutual fund and equity transactions executed in the customer’s account.

Dragon was fired from Berthel Fisher & Company on September 23, 2016, based upon allegations that he failed to cooperate with a heightened supervision agreement, wherein he failed to inform the firm about his commission based transactions.

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