- December 27, 2023
- First Financial Equity Corp.
Scott W. Reed (CRD#: 3007033) is a previously registered investment advisor and broker.
He entered the securities industry in 2008 and previously worked for Strategic Advisers, Inc.; Ashton Thomas Private Wealth, LLC; Wells Fargo Clearing Services, LLC; and First Financial Equity Corporation.
Allegations of Misconduct
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in December 2023, The Securities and Exchange Commission (“Commission”) initiated public administrative proceedings against Scott Wayne Reed (“Reed” or “Respondent”). In anticipation of the institution of these proceedings, Respondent submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept.
The Commission finds that on March 24, 2022, the Arizona Corporation Commission entered a final order (“Arizona Order”) against Reed in an administrative action entitled In the Matter of Scott Wayne Reed, Sarah Reed, Pebblekick, Inc., and Don K. Shiroishi, Docket No. S21132A-20-0370. The Arizona Order revoked Reed’s securities salesman registration and investment adviser representative license in Arizona, required Reed to cease and desist from violations of the Securities Act of Arizona and the Arizona Investment Management Act, required payment of restitution in the amount of $1,804,901, and imposed an administrative penalty in the amount of $50,000.
The Arizona Order found that Reed sold securities that were neither registered nor exempt from registration and that had not been approved by the brokerage firm he was associated with. It also found that Reed failed to disclose IRS liens, promised to guarantee a client’s investment without disclosing his own debts that would impair such a guaranty, and failed to disclose that he was selling investments in violation of Arizona law and FINRA’s rules.
The Arizona Order found Respondent liable for violations of provisions of the Securities Act of Arizona and the Arizona Investment Management Act that prohibit (i) selling securities that were neither registered nor exempt from registration, (ii) employing a device, scheme, or artifice to defraud, making untrue statements or misleading omissions of material facts, and engaging in transactions, practices, or courses of business that operate or would operate as a fraud or deceit.
As a result, Scott Reed was permanently barred indefinitely beginning on December 11, 2023.
In addition, Scott Reed has been the subject of several other disclosures, some which include the following:
- November 2023—“Respondent Reed failed to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance.” As a result, Reed was suspended until payment would have been made or discharged.
- November 2023—“During an unspecified period, Claimant alleges his Financial Advisor (FA) made unsuitable recommendations in a private securities investment without taking into consideration Claimant’s risk tolerance and financial objectives.” The customer dispute is still pending.
- September 2021—“ Attorney for client complained that financial advisor had the client invest in over $2 million of unapproved outside investments, and took hundreds of thousands of dollars in undisclosed commissions on these investments. (4/13/2017-4/7/2020.” The customer dispute settled for $2,250,000.
- February 2021—“Without admitting or denying the findings, Reed consented to the sanction and to the entry of findings that he participated in private securities transactions totaling at least $3.5 million without providing prior written notice to or obtaining advanced approval from his member firm. The findings stated that Reed solicited individuals, including at least two firm customers, to invest in securities issued by a software and web development company. Reed participated in these investments away from the firm by providing written materials about the company to investors, and by communicating with them orally, by email and text message about the company and encouraging them to invest. Reed also facilitated the transactions by, among other things, helping investors send or receive transfers of funds. Reed received selling compensation of $191,340 from the company for his role in soliciting and facilitating the investments. Reed also personally invested over $200,000 in the company.” As a result, Reed was barred by FINRA indefinitely. For a copy of the letter of acceptance, waiver and consent (AWC), click here.
- April 2020—“Allegations that registered representative recommended and facilitated investment opportunities in investments sold away from and not offered by Wells Fargo Advisors.” Reed voluntarily resigned.
For a copy of Scott Reed’s FINRA BrokerCheck, click here.
We Help Investors Recover Investment Losses
Pursuant to FINRA Rule 3270, outside business activities in which Financial Advisors become involved must be disclosed. This is in order to ensure that Financial Advisors do not engage in selling away. The Financial Industry Regulatory Authority (FINRA) strictly prohibits financial advisors from “selling away” or selling securities and investments to clients that are not offered by the brokerage firm with which they are employed. For example, it is illegal and a violation of industry rules for a financial advisor to recommend or even suggest that a client invest in the financial advisor’s own business or a business operated by his or her friends or family. It is not necessary that the financial advisor earn any compensation for recommending an outside investment.
The purpose behind this prohibition is to ensure that a financial advisor only offers to sell securities that have been vetted by his or her employer brokerage firm through a rigorous due diligence process. Most brokerage firms have an approved list of investments, products, and research that can be provided or made available to clients. Any deviation by the financial advisor from the approved product list may constitute selling away.
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 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 firstname.lastname@example.org.