• April 6, 2022
• LPL Financial

Kevin McCallum (CRD#: 2222586) is a previously registered Broker and Investment Advisor.

Broker’s Background

He entered the securities industry in 1993 and previously worked for LPL Financial, LLC; NBC Securities, Inc.; Colonial Brokerage, Inc.; and Amsouth Investment Services, Inc.

Current And Past Allegations Of Conduct Leading To Investment Loss

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in December 2021, a customer dispute was filed against Kevin McCallum. The allegation states, “Customers allege that between 2016 and 2020, representative made concentrated investments in customers’ accounts in a publicly traded BDC and engaged in options trading that were inappropriate for the customers’ investment objectives.” Damages of $725,650 are requested, and the customer dispute is pending.

In addition, Kevin McCallum has been the subject of seven customer complaints, including two that remain pending, including the following:

• October 2021 — “Customer alleges that between 2015 and 2019, representative made discretionary investments and concentrated customer’s accounts in Medley Capital Corporation.” The customer dispute was settled for $13,000.
• August 2021 — Customer alleges that between late 2016 and late 2018, representative made discretionary investments and concentrated his account in a non-diversified, closed end management company that was not consistent with his investment objectives. Damages of $4M are requested, and the customer dispute is pending.
• June 2021 — “Without admitting or denying the findings, McCallum consented to the sanctions and to the entry of findings that he made unsuitable recommendations to 12 customers, resulting in their overconcentration in a high-risk, publicly-traded business development company (BDC). The findings stated that the BDC that McCallum recommended held first and second lien secured loans, unsecured loans, and equity in small and medium-sized companies in a variety of industries, including construction, banking, telecommunications, pharmaceutical, and oil and gas companies. The risk of loss for investments in this BDC was magnified because it borrowed money. Additionally, the illiquidity of the BDC’s investments presented risk that it would be difficult for the BDC to sell such investments if required, causing it to realize significantly less than the value at which the BDC recorded the investments. Further, the BDC was exposed to interest rate risk that could affect its investment returns. McCallum’s recommendations resulted in the 12 customers concentrating as much as approximately 17% to over 60% in their liquid net worth the BDC. Four of the customers were over the age of 60 and seven of the customers invested retirement funds in the BDC. McCallum’s recommendations generated commissions to his member firm, $14,231.61 of which was paid to McCallum. Four customers sold their positions and realized losses totaling $1,222,092.29. The findings also stated that McCallum sent emails to customers about the BDC that contained unwarranted and exaggerated claims, opinions and forecasts, did not provide a fair and balanced treatment of the risks and benefits of the investment, and contained promissory statements. For example, in a email to a customer, McCallum discussed the customer’s account performance, including the purported benefits of continuing to hold a position in the BDC, but failed to explain the associated risks. McCallum also made statements that were promissory and unwarranted by stating that the stock price of the BDC would increase to 80% to 90% of the net asset value, stating that he did not anticipate further downside in the customer’s portfolio, stating that he was confident that the portfolio would rise back to previous levels and higher, and predicting that the Federal Reserve would raise interest rates three times in the year, which would benefit the BDC. McCallum also included an impermissible projection of the anticipated 12-month dividend cashflow from the BDC.” Kevin McCallum was fined $25,000 and sanctioned with a disgorgement of $14,231.61, restitution of $1.2M, and suspended from all capacities for one year, beginning June 21, 2021 and ending June 20, 2022. For a copy of the FINRA sanction, click here.
• February 2021 — “Customer alleges that between August 2019 and October 2019 IAR made unsuitable investment recommendations and concentrated account in Medley Capital Corporation.” The customer dispute is pending.
• December 2020 — “Customers allege that between October 2017 through December 2018 representative made discretionary investments and concentrated their accounts in a non-diversified, closed end management company that was not consistent with their investment objectives.” The customer dispute was settled for $1.9M.
• October 2020 — “Customer alleges that between October 2018 and December 2018 representative made unsuitable investment recommendations and concentrated claimants’ accounts in Medley Capital Corporation.” The customer dispute was settled for $130,000.
• November 2019 — “CUSTOMER ALLEGES THAT BETWEEN 2011 AND 2019 ADVISOR MADE UNAUTHORIZED AND UNSUITABLE PURCHASES OF THINLY TRADED SHARES OF MEDLEY CAPITAL CORPORATION RESULTING IN MORE THAN 50% CONCENTRATION IN THE CUSTOMER’S ACCOUNT.” The customer dispute was settled for $70,000.
• April 2019 — “CLAIMANTS ALLEGE THAT BETWEEN 2012 AND THE PRESENT, ADVISOR ENGAGED IN FRAUDULENT TRANSACTIONS AND RISKY INVESTMENTS, INCLUDING THE UNAUTHORIZED USE OF MARGIN.” Damages of $500,000 were granted.

For a copy of Kevin McCallum’s FINRA BrokerCheck, click here.

What Are Business Development Companies

Business Development Companies, or BDCs, are private, closed-end investment companies that help small companies meet their capital needs. BDCs originated in the 1980s to fuel corporate growth during periods of time when interest rates were high and small companies were unable to obtain cost-effective financing.

The BDCs make loans to small businesses and finance those loans through capital raised from investors. BDCs are only suitable for investors with a long-term investment horizon who are willing to accept higher levels of risk in their investments. If any of the companies default on their loan repayment obligations, that risk is shifted to investors.

Much like Non-Traded REITs, the prospectus for BDCs confirm that these securities carry a high degree of risk and that their income stream is subject to fluctuation or suspension. In recent years, BDCs have been oversold by brokerages and many of the BDCs have suspended dividends and their principal value has declined. BDC are also illiquid, preventing investors from selling their interest and limiting their loss.

We Help Investors Recover Investment Losses

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 age, 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.

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 mwolper@wolperlawfirm.com.