• August 20, 2024
• Western International Securities

Western Internation Securities, Inc., (CRD#: 39262) is registered brokerage firm and investment advisor firm in Pasadena, CA.

Allegations of Misconduct

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), In November 2022, Western entered into an AWC with FINRA through which the firm consented to findings that (i) from 2013 to 2017, it failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with its suitability obligations in connection with recommendations of non-traded real estate investment trusts and (ii) between 2015 and 2022, it failed to report or timely report approximately 45 written customer complaints, customer arbitrations, and settlements.

In May 2020, Western entered into an AWC with FINRA through which the firm consented to findings that from October 2011 through June 2018, it failed to (i) timely amend the Uniform Application for Securities Industry Registration or Transfer (Form U4) for 52 registered representatives to disclose 163 liens, judgments, and/or bankruptcies totaling more than $5.6 million and (ii) establish, maintain, and enforce a supervisory system reasonably designed to ensure the timely reporting of disclosable events.

In July 2019, Western entered into an AWC with FINRA through which the firm consented to findings that from January 2011 and January 2017, it failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that eligible customers who purchased mutual fund shares received the benefit of applicable sales charge waivers.

From January 2016 through June 2020, Western failed to have a supervisory system that was reasonably designed to ensure compliance with applicable securities laws and regulations and with FINRA rules prohibiting excessive trading, including FINRA Rule 2111.

Under Western’s WSPs for actively traded accounts, supervisors were supposed to review daily trade blotters and monthly account statements to detect potentially excessive trading. The WSPs failed to provide supervisors with guidance for evaluating cost-to-equity ratios, turnover rates, or any other useful indicators of potentially excessive trading. The trade-blotter-based surveillance did not reasonably permit supervisors to incorporate any such indicators into their review.

In addition, Western’s WSPs did not require supervisors to take reasonable steps to respond to any potentially excessive trading that they might identify. For example, the firm’s WSPs did not require supervisors to determine or document the factual justification for recommending trading in excess of specific cost-to-equity ratios or turnover rate thresholds, to contact customers by phone or in person to confirm the suitability of even the most active trading, or to impose any discipline or heightened supervision on registered representatives in response to potentially excessive trading. Instead, supervisors were only required to notify compliance staff, who were in turn supposed to send activity letters to customers.

Western also failed to consistently enforce its activity letter procedures. If individual compliance staff failed to send activity letters, keep track of deadlines, or restrict accounts when required, there was no failsafe. For example, a sample from the first half of 2020 showed that most compliance staff did not always record if and when an activity letter was sent and returned for a flagged account. Also, in multiple instances trading continued for a period after trading was supposed to have been restricted, in one case for more than six months.

As a result of all of the above, Western failed to reasonably review trading that appeared to be potentially excessive in approximately one hundred accounts. During the relevant period, four former Western registered representatives in particular traded excessively in certain of their customers’ accounts.

Respondent therefore consents to the imposition of the following sanctions:
• a censure;
• a $475,000 fine;
• restitution of $1,057,632.70 plus interest as described below;
• an undertaking that within 90 days of the date of the notice of acceptance of this AWC, a member of Respondent’s senior management who is a registered principal of the firm shall certify in writing that, as of the date of the certification, the firm has implemented and will maintain, for not less than one year, a reasonable plan of heightened supervision for the current registered representatives identified in Attachment B to this AWC; and
• an undertaking that within 90 days of the date of the notice of acceptance of this AWC, a member of Respondent’s senior management who is a registered principal of the firm shall certify in writing that, as of the date of the certification, the firm has remediated the issues identified in this AWC and implemented a supervisory system, including written supervisory procedures, reasonably designed to address the violations described above, including identifying and responding to red flags of potentially excessive trading.
For a copy of the FINRA Sanction, click here.

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 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.