FINRA has suspended financial advisor Jay Clint Tomlinson from the securities industry for three months and fined him $7,500. Mr. Tomlinson’s sanctions arise from his improper use of discretion without written authorization when placing 379 trades in three customers’ accounts.
FINRA has also censured Tomlinson’s employer, New York financial services firm R.F. Lafferty & Co., Inc., and ordered the firm to pay a fine of $55,000. R.F. Lafferty & Co., Inc. (“R.F. Lafferty”) failed to maintain order memoranda that accurately reflected whether trades were solicited or unsolicited for more than 56,000 trades in customer accounts. R.F. Lafferty also failed to establish and maintain a supervisory system, and failed to enforce written supervisory procedures, reasonably designed to achieve compliance with applicable recordkeeping laws, regulations, and rules pertaining to review and retention of order memoranda.
This is not the first time Mr. Tomlinson and R.F. Lafferty have been sanctioned by FINRA. In November 2012, Mr. Tomlinson was suspended for 30 days and fined $7,500 for failing to timely provide documents and information to FINRA. At the time, Mr. Tomlinson was the Chief Compliance Officer at Brimberg & Co. Brimberg & Co. was expelled from the securities industry by FINRA for failing to pay its monetary fines.
According to public records, R.F. Lafferty has been sanctioned by FINRA on four previous occasions for conduct related to supervisory violations, reporting violations, and inadequate policies.
Jay Clint Tomlinson’s Letter of Acceptance, Waiver, and Consent
Jay Clint Tomlinson and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 11, 2020, over allegations related to Mr. Tomlinson’s conduct between October 2015 and April 2016, specifically that he:
- In late September 2015, Mr. Tomlinson took over the management of three customer accounts previously managed by a third-party investment advisor who used a high-frequency, intra-day trading strategy focused on pharmaceutical stocks.
- Tomlinson continued to use this trading strategy.
- However, unlike the investment advisor, he did not have written authorization to exercise discretion in the accounts.
- In fact, Mr. Tomlinson was subject to a plan of heightened supervision by his firm that forbade him from placing discretionary trades in customer accounts.
- In addition, unlike the investment advisor, who acted pursuant to a fixed-fee arrangement to manage the account, Mr. Tomlinson charged a commission for each trade in the investment accounts.
- From October 2015 through April 2016, even though he had neither written authorization from his customers nor his firm’s written acceptance to place discretionary trades, Mr. Tomlinson placed 379 discretionary trades in the accounts of these three customers.
- Tomlinson typically purchased and/or sold the same securities on the same day, often multiple times per day.
- Tomlinson did not seek approval from his customers before placing each trade. Rather, Tomlinson placed trades and later updated the customers about the results of his trading.
Under FINRA rules, to exercise discretionary power, a broker must have prior written authorization from a customer before executing a trade. FINRA rules require that a customer sign a discretionary disclosure, which allows the customer to place limits on the discretion being granted to the broker. Additionally, the firm must approve the account to be discretionary. A broker can then use his discretion and place trades without obtaining the customer’s authorization first. A discretionary account is often referred to as a “managed” account. However, without such written authorization by the customer and firm approval, a broker who receives verbal authorization from a client to execute a trade and makes the transaction violates FINRA rules. Oral permission to execute a trade is not sufficient.
In non-discretionary accounts, customers retain discretion, and brokers must always obtain their customer’s permission before placing a trade. You can read more about unauthorized trading in the context of both discretionary and non-discretionary accounts here: Unauthorized Trading.
R.F. Lafferty & Co., Inc.’s Letter of Acceptance, Waiver, and Consent
R.F. Lafferty, a FINRA member since 1949, is a brokerage firm headquartered in New York, NY. R.F. Lafferty has approximately 70 financial advisors and operates out of four branch locations.
R.F. Lafferty and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 11, 2020, over allegations related to the firm’s conduct between July 2014 and July 2017, specifically:
- R.F. Lafferty failed to maintain order memoranda that accurately reflected whether trades were solicited or unsolicited for more than 56,000 trades in customer accounts.
- R.F. Lafferty also failed to establish and maintain a supervisory system, and failed to enforce written supervisory procedures, reasonably designed to achieve compliance with applicable recordkeeping laws, regulations, and rules pertaining to review and retention of order memoranda.
- When entering trades in the order management systems maintained by the firm’s clearing firms, the firm allowed individual representatives to select whether or not they had solicited the trades.
- R.F. Lafferty then retained just the information it received from its clearing firms as the order memoranda in its books and records.
- However, the firm maintained no supervisory system to ensure the accuracy of its order memoranda, and no firm principal took supervisory steps to ensure the accuracy of the firm’s order memoranda.
- On the contrary, when the firm supervisory personnel became aware of the inaccurate blank or “N/A” solicitation information in the firm’s book and records, they treated the trades as unsolicited for purposes of supervisory review.
- The limited steps that the firm took to correct the problem were not reasonable.
R.F. Lafferty & Co., Inc. – A Duty to Supervise
Financial institutions, like R.F. Lafferty, must properly supervise financial advisors and customer accounts. Brokerage firms are required to establish and maintain a reasonably designed system to oversee account activity, such as the improper use of discretion, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
If you have lost money with Jay Clint Tomlinson or R.F. Lafferty, contact New York securities arbitration lawyer August Iorio of Iorio Altamirano LLP at firstname.lastname@example.org or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.