Failure To Supervise

Paul Michael Mallory of Livonia Michigan a stockbroker formerly registered with Concorde Investment Services LLC has been fined $5,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity founded on findings that (1) Mallory neglected to adequately supervise the recommendations of a stockbroker to ensure that those recommendations were suitable for one or more customers and (2) Mallory authorized securities transactions based on false information that had been conveyed within customers’ investment applications. Letter of Acceptance Waiver and Consent No. 2018060577601 (Nov. 15, 2019).

According to the AWC, investment recommendations had been made to customers by a Concorde Investment Services stockbroker, RC, who Concorde terminated in July of 2016. it was Mallory’s responsibility to ensure that the recommendations and transactions that RC made were appropriate for customers.

The AWC stated that Mallory was apprised of problematic information about RC’s recommendations which indicated that RC made unsuitable recommendations. Particularly, shares in a private placement had been recommended by RC to customers of the securities broker dealer. The private placement memorandum revealed that there was substantial risk; the investment was speculative and inappropriate for non-accredited investors. RC’s investment recommendations had been approved by Mallory despite signs of the investors not being suitable for those investments nor qualified based on the criteria stated in the private placement memorandum.

In one case, a twenty-two year old student’s income had been falsified on documentation submitted by RC to effect a private placement purchase. The transaction had been authorized by Mallory without there being any verification of the customer’s net worth and despite the customer’s investment objectives and moderate risk tolerance being inconsistent with the recommended investments which were speculative and aggressive.

In another case, an eighty-five year old widow had been advised by RC to invest in shares of a private placement. This customers account documentation indicated that she had a moderate tolerance for risk and between $300,000.00 and $999,999.00 to use for investing in the private placement. When the application had been furnished by RC to Mallory for his review, the customer’s net worth was misrepresented. There was no point in which Mallory verified the information conveyed in the application. There was no point in which he evaluated the aggressive investment recommendation given the customer’s moderate tolerance for risk.

FINRA revealed that there were no steps taken by Mallory to follow up on red flags that were evident within the recommendations made by RC. FINRA stated that if Mallory adequately supervised the transactions, he would have found out that, inter alia: investments failed to comport with customers’ investment objectives; investors failed to be accredited; and transactions had not been authorized by the customers.

FINRA stated that Mallory also authorized RC’s recommendations at a time that Mallory should have known that the documents pertaining to recommended transactions were false. In one case, an application had been submitted by RC to initiate a non-traded real estate investment trust purchase on a California resident’s behalf. The AWC stated that RC was not licensed in California, so he was not authorized to effect those transactions. After RC suspiciously submitted a revised application, Mallory neglected to review it. The AWC indicated that if reviewed, Mallory would have discovered that applications listed RC’s spouse as the person who advised the customer to purchase the non-traded real estate investment trust when it was RC who advised the customer.

FINRA found Mallory’s failure to supervise violative of FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Rules 3010. His registration with Concorde Investment Services LLC has been terminated as of December 7, 2017.

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