Minnesota Van Clemens & Co. Broker Agrees to FINRA Sanctions to Resolve Allegations of Excessive and Unsuitable Microcap Stock TradingWednesday, February 26, 2020
On February 4, 2020, the Financial Industry Regulatory Authority (FINRA) Department of Enforcement approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by Peter Monson, a general securities representative currently associated with Van Clemens & Co. Incorporated. Monson has been associated with the Minneapolis, Minnesota firm since February 2014.
FINRA Department of Enforcement alleges in the AWC that between June 1, 2015 and June 30, 2016, Monson engaged in excessive and unsuitable trading involving microcap stocks in a customer’s IRA account without the customer’s consent and without authorization from Van Clemens & Co. FINRA asserts that Monson’s recommendations and trading activities in this account did not reflect the customer’s investment profile which stated that she planned to use the account to “partially fund [her retirement” and gave her investment time horizon as longer than 20 years. The customer had only previously invested in mutual funds and had never purchased individual stocks before becoming Monson’s customer in 2012.
In 2014, the customer transferred her IRA account to Van Clemens from 1st Discount Brokerage, Inc., a Minnesota firm which Monson was associated with from August 2002 to March 2014. FINRA claims that immediately upon this transfer, Monson asserted control over this customer’s IRA, trading mostly microcap stocks and occasional in-and-out trades. From the time the customer opened the account under Monson’s control in 2012 through June 2015, the IRA account decreased from $429,000 to $176,304. This 60% drop in value was due to investment losses, commissions charged for trades and personal withdrawals that the customer used to help finance a family business. FINRA asserts that Monson’s trade activity in this IRA account was unsuitable considering the customer the account had declined by over 60% since its inception and since the customer learned she had advanced-stage cancer.
Monson’s aggressive trading strategy, making 187 trades between June 1, 2015 and June 30, 2016 for a total cost of $14,514.53, resulted in an annualized turnover rate of 9.07 and an annualized cost-equity ratio of 34.27%. Further, these trades consisted almost entirely of microcap stocks issued by companies with “minimal operating histories, companies domiciled in jurisdictions with opaque markets and limited disclosure obligations, or both.” For example, on June 30, 2015, Monson concentrated 25.7% of the customer’s IRA account in Alpha Natural Resources, Inc. and over $10,000 worth of additional stocks in this account the next day at $0.302 per share. Within one month, the stock dropped nearly 85% and caused the customer’s account to lose nearly one third of its value.
FINRA also claims that during this same time period, Monson exercised discretion when placing trades in three customers’ accounts, including the customer with whom he excessively and unsuitably traded the IRA account. He never obtained written authorization from the customers and did not seek or obtain approval from Van Clemens to exercise direction in any customer accounts during this time period.
As a result, Peter Monson violated NASD Rule 2510(b) and FINRA Rules 2111 and 2010. Without admitting or denying the allegations made against him by FINRA, Monson consented to a six-month suspension from associating with any FINRA member firm in any capacity and a $7,500 fine.
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