A retired broker has agreed to pay $5,000 to settle Financial Industry Regulatory Authority charges that he violated a municipal securities rule by stuffing the account of a more than 100 year-old customer with risky high-yield muni bonds.
Jeffrey Fladell, who retired from RBC Capital Markets in 2017, agreed to pay that fine and be suspended for three months from being associated with any FINRA firm in any capacity. He neither admitted nor denied FINRA’s findings that he violated Municipal Securities Rulemaking Board Rule G-19 on suitability of recommendations and transactions when he concentrated the elderly “Customer M” in high-yield bonds.
“From February 2014 through August 2015, Customer M was a retired senior over 100 years old, who was the trustee for two conservative trust accounts at RBC,” FINRA found. “Both accounts had the most conservative investment objective with a low risk tolerance. Beginning in 2014, despite the volatility of the municipal bond market at the time, Fladell repeatedly recommended that Customer M invest in high-yield municipal bonds, a recommendation that was contrary to the investment profile of the trust accounts. By June 2015, 86% of Customer M's holdings and 100% of Customer M's sister-in-law's holdings, in conservative trust accounts, consisted of risky high-yield municipal bonds.”
Rule G-19 requires that “a broker, dealer or municipal securities dealer must have a reasonable basis to believe that a recommended transaction or investment strategy involving a municipal security or municipal securities is suitable for the customer, based on the information obtained through the reasonable diligence of the broker, dealer or municipal securities dealer to ascertain the customer's investment profile.”
The rule further specifies that age and investment objectives are among the factors that brokers should consider in determining the investment profile of a customer.
FINRA records show that Fladell began his career in 1970 at Bernard Schnitzer, and worked at several firms before joining RBC in 2009. The records also show that he was previously barred from the industry as a result of his 1992 guilty plea to a misdemeanor charge of providing false information to the Internal Revenue Service in connection with his 1986 tax return.
Fladell’s attorney did not respond to a request for comment on the FINRA settlement.
