FINRA Brings Actiopn Against Stockbroker For Unsuitable REIT Sales
Mercer Hicks III (also known as Toby Hicks) of Pinehurst North Carolina a stockbroker formerly registered with Capital Investment Group Inc. has been charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that his advice to customers regarding non-traded business development companies and non-traded real estate investment trust products was unsuitable. Department of Enforcement v. Mercer Hicks III Disciplinary Proceeding No. 2017052867301 (Dec. 20, 2019).
According to the Complaint, from June 1, 2014 to July 31, 2017, recommendations had been made by Hicks for at least five elderly Capital Investment Group customers to invest in non-traded business development companies (BDCs) and non-traded real estate investment trust (REITs). The Complaint alleged that there was no reasonable due diligence undertaken by Hicks with regard to the products which prevented him from comprehending their features and risks when he advised customers to purchase them.
FINRA Department of Enforcement stated that the subscription agreements and prospectuses for the non-traded business development companies and non-traded real estate investment trusts Hicks recommended conveyed that the investments were, inter alia: speculative; very risky; and unsuitable for those investors needing guaranteed income, liquidity or who had short-term investment horizons. Only investors who could afford to lose everything were appropriate for those investments, according to the prospectuses.
The Complaint also stated that when recommendations were made by Hicks, the elderly customers, aged seventy-three to eighty-seven, did not intend on investing on a risky, speculative basis. Allegedly, the customer account documentation reflected that the customers either intended for capital appreciation or preservation of capital. FINRA indicated that the lack of liquidity in the investments Hicks recommended left customers having to scramble to retrieve necessary funds to cover medical expenses.
The Complaint additionally stated that it was not suitable for Hicks to have advised the customers on the purchase of non-traded business development companies and non-traded real estate investment trusts given customers’ investment experiences, risk tolerances, needs, financial situations and investment objectives. The regulator claimed that since Hicks failed to undertake reasonable due diligence on the investments before advising customers, he failed to have an adequate basis in concluding that his recommendations were appropriate. The Complaint stated that Hicks’ conduct was violative of FINRA Rules 2010 and 2111.
FINRA Public Disclosure additionally reveals that Hicks has been terminated by three securities broker dealers based upon allegations of his misconduct. For example, Hicks was discharged by Capital Investment Group Inc. supported by accusations that he violated industry standards and the securities broker dealer’s policy through making misrepresentations when interacting with an insurance company.