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J.W. Cole Financial, Inc. Sanctioned by FINRA for Sales Practices Relating To Sales And Supervision Of LJM Preservation & Growth Fund

J.W. Cole Financial, Inc. (CRD No. 124583) became a FINRA member firm in 2003. Registered representatives work on an independent contractor model. The company has more than 450 registered representatives and more than 250 offices across America.

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in , FINRA sanctioned J.W. Cole Financial, Inc. with censure, a fine of $50,000, restitution of $163,527 plus interest; and a certification signed by an officer and registered principal of the firm that, as of the date of the certification, J.W. Cole has established and implemented policies, procedures, and internal controls reasonably designed to address and remediate the issues identified in this AWC. The FINRA sanction states, “Respondent hereby accepts and consents, without admitting or denying the findings and solely for the purposes of this proceeding and any other proceeding brought by or on behalf of FINRA, or to which FINRA is a party, prior to a hearing and without an adjudication of any issue of law or fact, to the entry of the following findings by FINRA… Between May 2017 and December 2017, J.W. Cole failed to reasonably supervise representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund (LJM). 1 J.W. Cole permitted the sale of LJM on its platform without conducting reasonable due diligence and without a sufficient understanding of its risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options. J.W. Cole also lacked a reasonable supervisory system to review representatives’ LJM recommendations. The firm’s representatives sold approximately $1 million in LJM to customers. LJM’s value dropped 80% during an extreme volatility event in February 2018 and the fund ultimately liquidated and closed, resulting in thousands of dollars in losses for J.W. Cole’s customers. By virtue of the foregoing, J.W. Cole violated FINRA Rules 3110 and 2010.”

For a copy of the FINRA sanction, click here.

J.W. Cole Financial, Inc., does not have any relevant disciplinary history.

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.

Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.

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.

Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s agee, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.

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 represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, 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 mwolper@wolperlawfirm.com.

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