PHOENIX - The Financial Industry Regulatory Authority has fined and suspended a broker for falsifying applications for 529 college savings plans.
Philip Fluegge agreed to pay $5,000 and serve a two-month suspension to settle FINRA charges that he violated the self-regulator’s rules a half dozen times between June 2013 and December 2015, when he was a registered representative at Massachusetts-based Commonwealth Financial Network. Fluegge settled the charges without either admitting or denying them.
While no Municipal Securities Rulemaking Board rule violations were alleged by FINRA, the 529 plans are themselves municipal securities.
529 plans can be sold with different share classes, including Class A and Class C shares. Class A shares generally include a front-end sales charge but lower annual fees than Class C shares. Class C shares generally have no or lower front-end sales charges but higher annual fees than Class A shares. According to FINRA, Commonwealth's Compliance Manual prohibited purchases of Class C shares if the beneficiary's investment horizon was more than six years, unless a representative could "demonstrate in writing that Class C shares [were] reasonably expected to be less costly than Class A shares over the beneficiary's expected time horizon."
According to FINRA, Fluegge on six separate occasions falsified documents to enable customers to purchase Class C shares when such purchases were prohibited by Commonwealth. Specifically, FINRA examiners found, Fluegge caused the firm's books and records to be inaccurate by directing six customers who had expressed a preference for Class C shares to sign applications for Class A shares, which Fluegge then submitted to Commonwealth for review. Once Commonwealth had approved the applications, Fluegge changed the share class from A to C before submitting the applications to the plan sponsors.
That conduct violated FINRA Rules 4511 and 2010, FINRA said. Rule 4511 is FINRA’s books and records rule, while 2010 requires members to “observe high standards of commercial honor and just and equitable principles of trade.”
Fluegge’s attorney did not respond to a request for comment.