- April 13, 2021
- Lincoln Douglas Investments
Herbert G. Frey (CRD#: 214237) was a previously registered broker at Lincoln Douglas Investments, LLC in Mt. Vernon, OH. He entered the securities industry in 1966 and previously worked for Union Capital Company, Landolt Securities, Inc., Sigma Financial Corp., LaSalle Securities, LLC, L.M. Kohn & Co., Jettrade, Inc., Birchtree Financial Services, Inc., Robert Todd Financial Corp., Queen City Securities Corp., Bache Halsey Stuart Shields Inc., and Harrison & Co.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in March 2021, FINRA sanctioned Herbert G. Frey, suspending him from all capacities for a period of 16 months beginning on April 5, 2021 and ending August 4, 2022, and assessing a civil and administrative penalty of $15,000 plus a disgorgement of $76,137. The FINRA sanction states, “Without admitting or denying the findings, Frey consented to the sanctions and to the entry of findings that he excessively traded a customer’s account and placed unauthorized trades in the customer’s account. The findings stated that the customer is a 54-year old disabled homemaker who was gifted the securities account that they maintained with Frey. The customer’s investment objectives were capital preservation and growth. Frey executed 679 unauthorized trades in the customer’s account and therefore exercised actual control over the account. This trading caused the customer to pay $135,210 in fees and commissions, and Frey retained $76,137 of these commissions. The trading in the customer’s account resulted in the customer incurring a realized loss of 142,805. Frey executed the transactions in the customer’s account without the customer’s prior authorization, knowledge, or consent. Frey did not contact the customer regarding any of these transactions prior to placing the trades, and did not have discretionary trading authority in the customer’s account. The findings also stated that Frey caused his member firm to maintain inaccurate books and records. Frey provided inaccurate and misleading consolidated account summaries to the customer, which made it appear that the customer’s account value was much higher than its true value. Frey also directed the customer to sign blank new account forms at the firm, which he then completed with inaccurate information regarding the customer’s investment experience and risk tolerance.”
For a copy of the FINRA sanction, click here.
In addition, Herbert G. Frey has been the subject of many disclosures, including the following:
● November 2019—”AllegationsExcessive trading since 2012, primarily using options covered call strategy. Misleading account information from December 2013 to July 2018.” Damages of $45,000 were granted.
● August 2018—”Failure to Disclose an Outside Business Activity.” Herber G. Frey was permitted to resign from Union Capital Company.
● January 2017—”Bankruptcy.” The disposition was discharged.
● September 2016—”during the last several years complainant alleges potential claims for negligence, negligent investment advice, unjust enrichment, unsuitability, churning/overtrading, breach of fiduciary duty, breach of contract, misrepresentation, margin violations.” Damages of $100,000 were requested. The customer dispute was closed with no action.
● June 2016—”Without admitting or denying the findings, Frey consented to the sanctions and to the entry of findings that he, acting as FINOP, caused his member firm to fail to maintain its minimum required net capital while engaging in a securities business. The findings stated that there were several factors that led to the net capital deficiencies. First, in connection with a written expense sharing agreement between the firm and its holding company, the firm through Frey failed to accrue for all liabilities applicable to the firm. Second, the firm through Frey failed to accurately reconcile the firm’s bank account statements. Third, the firm through Frey failed to accurately compute haircuts on its proprietary positions and on the securities held as collateral for the firm’s approved subordinated loan. Fourth, in an attempt to maintain the minimum required net capital, for each of the months that the firm was net capital deficient, Frey deposited funds into the firm’s bank account at month-end, and withdrew those funds from the bank account typically within a few days of the deposits. The findings also stated that as a result, in addition to net capital deficiencies, the firm through Frey failed to prepare and maintain an accurate general ledger, trial balance and balance sheet. The findings also included that as a result, the firm through Frey filed inaccurate FOCUS. Moreover, the capital additions and withdrawals resulted in the firm’s failure to comply with FINRA Rule 4110(c)(1) because the equity capital remained in the firm less than one year from the date the addition was made, and because the firm failed to receive written approval from FINRA prior to withdrawing the equity capital.” FINRA sanctioned Herbert G. Frey, suspending him in any FINOP capacity for 45 days beginning August 1, 2016 and ending September 14, 2016, and assessing a civil and administrative penalty of $5,000. For a copy of Herbert G. Frey’s disciplinary action, click here.
● June 2006—”Failure to disclose tax lien.” Herbert G. Frey was discharged by Sigma Financial Corporation.
● April 1997—”Not Provided THE NASD R SUSPENDED ME FOR 180 DAYS ON MARCH 11, 1997. REGARDING CASE C8B930020. I APPEALED THE SUSPENSION ON MARCH 18, 1997 AND THE SEC GRANTED A STAY ON APRIL 2ND 1987.” Herbert G. Frey was discharged by Birchtree Financial Services, Inc.
● December 1993—”Censure” and “Suspension.” This regulatory decision was initiated by the National Association of Securities Dealers, Inc.
● June 1990—”Censure” and “Suspension.” This regulatory decision was initiated by the National Association of Securities Dealers, Inc. The sanctions included a monetary fine of $10,000.
● November 1989–CLAIMANT ALLEGED THAT RESPONDENTS NEVER EXPLAINED TO THE CLAIMANT MATERIAL INFORMATION REGARDING HER PURCHASE OF DEBENTURES IN AMERICAN CONTINENTAL CORPORTION AND THAT RESPONDENTS FAILED TO DISCLOSE THEIR OWN INTEREST IN BONDS. CLAIMANT ALLEGED RESPONDENT MADE MATERIAL MISREPRESENTATIONS AND FAILED TO MEET REQUIREMENT OF SUITABILTY RULES. allegation raised 11/13/1990.” Damages of $8,000 were awarded. The arbitration details are available here.
● October 1989—”Censure.” This regulatory decision was initiated by the National Association of Securities Dealers, Inc. The sanctions included a monetary fine of $5,000.
● October 1989—”PLAINTIFFS ARE SEEKING TO RECOVER DAMAGES SUFFERED AS A RESULT OF DEFENDANT’S VIOLATIONS OF THE FEDERAL SECURITIES LAWS, DEFENDANT’S FRAUD AND DECEIT, DEFENDANT’S BREACH OF FIDUCIARY DUTY AND TRUST AND DEFENDANTS’ OTHER TORTIOUS AND UNLAWFUL CONDUCT IN REGARDS TO PURCHASE OF AMERICAN CONTINENTAL CORPORATION SECURITIES.” The customer dispute was settled for $93,585.94.
● September 1989—”CLAIMANTS ALLEGED THAT ONLY $10,000 WORTH OF AMERICAN CONTINENTAL CORPORATION DEBENTURES WERE AUTHORIZED TO BE PURCHASED BY THE RESPONDENTS FOR THE CLAIMANT’S ACCOUNTS AND THAT ALL OTHER PURCHASES FOR AMERICAN CONTINENTAL CORPORATION WERE NOT AUTHORIZED. CLAIMANTS ALLEGED RESPONDENTS “GUARANTEED” CLAIMANTS INVESTMENT.” The customer dispute was settled for $19,106.00. For arbitration details, click here.
● June 1989– “Censure.” This regulatory action was initiated by the National Association of Securities Dealers, Inc. The sanctions included a monetary fine of $5,000.
● June 1982–“Censure.” This regulatory action was initiated by the National Association of Securities Dealers, Inc. The sanctions included a monetary fine of $5,000.
● January 1978—”Censure” and Bar.” This regulatory action was initiated by the New York Stock Exchange. The sanctions included a monetary fine of $7,500.
● August 1977—”Censure.” This regulatory action was initiated by the National Association of Securities Dealers, Inc. The sanctions included a monetary fine of $2,000.
● January 1975—”PURCHASER PURCHASED COMMERCIAL PAPER AND THE ISSUER OF THE COMMERCIAL PAPER SUBSEQUENTLY WENT INTO CHAPTER XI PROCEEDINGS. THE ACTION RELATED TO THE DUTY OF THE BROKERAGE TO HAVE KNOWN THE CONDITION OF THE ISSUER AT THE TIME THE SALE WAS MADE RATHER THAN RELYING ON PREVIOUS FINANCIAL INFORMATION, AND WHAT REPRESENTATIONS WERE NOT MADE.” The customer dispute was settled for $37,500.00.
For a copy of Herbert G. Frey’s FINRA BrokerCheck, click here.
Excessive trading often occurs when a Financial Advisor puts his or her interests ahead of the clients and makes transactions solely for the purpose of generating commissions. Financial Advisors have a regulatory duty to recommend suitable investment strategies. One of the components of the suitability analysis is quantitative suitability.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation. Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at firstname.lastname@example.org.