Investor Lawyers Blog
The Financial Industry Regulatory Authority (“FINRA”) has barred former Wells Fargo (CRD# 126292) financial advisors Charles Henry Frieda (CRD# 5502319) and Charles B. Lynch, Jr. (CRD# 3004877) for allegedly engaging in a pattern and practice of recommending an unsuitable over-concentration in energy-sector securities to numerous customers. On April 12, 2016, Mr. Lynch was discharged by Wells Fargo for “loss of management confidence,” as reported on Wells’ Form U-5 filing with regulators. His partner, Mr. Frieda, remained at Wells until September 2017.
Pursuant to FINRA Rule 9216, on November 27, 2017, both Messrs. Lynch and Frieda submitted a Letter of Acceptance, Waiver and Consent (“AWC”) for the purposes of proposing a settlement to certain alleged industry rule violations. Specifically, it was alleged by FINRA Enforcement in the AWC that “From November 2012 to October 2015” both former Wells Fargo advisors “[r]ecommended an investment strategy that was unsuitable for certain retail customers” and purportedly involved the brokers recommending “[a]n over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses.”
As part of the AWC, FINRA Enforcement alleged that Messrs. Lynch and Frieda violated FINRA Rule 2111. In relevant part, Rule 2111 – the so-called suitability rule – mandates that a broker “must have a reasonable basis to believe that a recommended… investment strategy involving a security or securities is suitable for the customer, based on the information obtained through reasonable due diligence….”