Another Broker Gets Dinged over UIT Sales at Morgan Stanley
The Financial Industry Regulatory Authority continued its prosecution of unit investment trust sales abuses this week, saying a Washington, DC, broker violated customer suitability guidelines while working at Morgan Stanley.
Lloyd Thomas Layton, a 31-year brokerage veteran who now works at Wells Fargo Advisors, agreed this week to a three-month suspension and $5,000 fine to settle charges of unsuitable sales in UIT accounts, according to a settlement letter published on the regulator’s website.
Layton unsuitably traded out of UITs in 54 client accounts between 2012 and 2015, in advance of the securities’ two-year maturity date, in order to generate commissions for himself, according to the letter. In some cases, he used the proceeds to reinvest in another UIT with similar or identical investment objectives, Finra said.
“Layton’s recommendations caused his customers to incur unnecessary sales charges, and were unsuitable in view of the frequency and cost of the transactions,” Finra wrote.
Layton, who began his brokerage career at Merrill Lynch in 1987, neither admitted nor denied Finra’s findings, according to the settlement he signed. His BrokerCheck report has no record of customer complaints or other disclosure events.
Jeremy Bartell, the Washington D.C.-based lawyer who represented Layton, declined to comment.
Finra two years ago opened a sweep investigation of UIT sales practices and supervisions, asking broker-dealers to provide lists of brokers who generated the highest number of “early rollover” UIT transactions and of the top 25 UIT-revenue producers at their firms.
Morgan Stanley paid $3.25 million to Finra in September 2017 over supervisory and systemic issues related to its oversight of UIT sales, as well as almost $10 million to customers. It said at the time that it began an internal investigation to weed out sales abuses in the accounts. Former Morgan Stanley advisors in Saratoga Springs, NY, and in Albany, NY, earlier this year acceded to sanctions from Finra over UIT sales.
On Wednesday, Massachusetts’ securities division on Wednesday charged broker-dealer StockCross Financial Services and one of its brokers, Peter E. Cunningham, over improper, short-term sales of unit investment trusts to generate commissions.
The California firm, which was founded in Boston, last year transferred most of its retail customer assets and brokers to its parent, Siebert Financial Corp.
Massachusetts alleged that Cunningham generated at least $750,000 from the unsuitable sales since 2012, many to elderly customers residing in Massachusetts, according to the state’s complaint. It accuses StockCross, which three years ago paid an $800,000 regulatory fine over short-sale violations, of having an “inadequate” supervisory structure.
StockCross hired Cunningham in 2002, despite his having a history of customer complaints, owed $100,000 in two civil lawsuits and his termination by another discount brokerage firm, according to the state complaint.
The broker was discharged by TD Waterhouse Investors in 2001 “due to multiple customer complaints,” his BrokerCheck history says, though Cunningham noted that at least one complaint was withdrawn.
The state complaint, which seeks a fine and a cease-and-desist order, says StockCross put him on heightened supervision in 2017 but failed to properly supervise him, according to the complaint.
Cunningham, who remains registered with StockCross in Beverly Hills, did not return a call for comment. A spokesperson at Siebert also did not return a call for comment.