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This article was originally published by Financial-Planning.com
A former Cetera advisor who worked for MidFirst Bank in Tulsa, Oklahoma has agreed to a six-month suspension from the brokerage industry and a $10,000 fine for allegedly persuading a customer to liquidate his IRA and invest the money in a risky and costly options trading strategy he managed, according to the rep’s recent settlement with FINRA.
Richard Charles Foster told the customer that he could receive a higher rate of return if he transferred the funds to an outside brokerage account he established to trade exchange-traded funds options, FINRA claimed.
He also purportedly told the client that he could generate sufficient returns to make up for the tax penalty he would incur for the early liquidation of his IRA.
While Foster had received authorization from Cetera to operate the CF Income Fund, he represented that it would be a personal trading vehicle and would not involve any customers, FINRA said.
The customer liquidated $160,000 of the $169,000 he held in the Cetera IRA and gave the funds to Foster in March 2014. About 18 months later, the investment was worth only $52,000, insufficient to pay even the $81,000 tax penalty the customer incurred from liquidating his IRA early.
FINRA scolded Foster for his investment recommendations, saying they were unsuitable on multiple fronts. “A high concentration of assets in risky securities or in a risky strategy is unsuitable, especially when the customer is not in a financial position to take risks associated with speculative investing,” FINRA said.
The customer made between $50,000 to $75,000 annually and had an adjusted net worth and liquid net worth between $250,000 and $500,000, according to FINRA. He allegedly had no other assets or retirement accounts apart from $100,000 in stock holdings.
The regulator chastised Foster for his lack of experience in trading ETF options, saying “he had no reasonable basis to believe that the strategy was suitable for any investor,” and reprimanded him for co-mingling the customer’s funds with his own funds in the outside brokerage account.
Foster could not be reached for comment. He agreed to FINRA’s sanctions without admitting or denying the regulator’s findings.
Foster worked for both Cetera and MidFirst Bank from October 2012 to April 2014, according to BrokerCheck records. He voluntarily resigned from Cetera, FINRA said.
Joseph Kuo, a spokesman for Cetera, declined to comment, saying the firm doesn’t discuss legal or regulatory matters.