The Financial Industry Regulatory Authority (“FINRA”) has suspended financial advisor Stuart Pearl from the securities industry for three months. Mr. Pearl consented to the suspension after FINRA alleged that from March 2017 and August 2018, while associated with David A. Noyes & Company (now Sanctuary Securities, Inc.) in Indianapolis, Indiana, he recommended the purchase of leveraged and inverse exchange-traded funds (collectively “Non-Traditional ETFs”) to four customers without having a sufficient understanding of the risks and features associated with these products and thereby failing to have a reasonable basis for making these recommendations. In addition to the suspension, Mr. Pearl is also subject to a $5,000 deferred fine.
Sanctuary Securities, Inc. became a member of FINRA in December 1939 and was known as David A. Noyes & Company until March 5, 2020. The firm has 35 branch offices and approximately registered representatives. Iorio Altamirano LLP is also Sanctuary Securities, Inc. over inverse and leveraged exchange-traded funds supervisory failures. To read more about the investigation, click on the following link: Iorio Altamirano LLP Investigates Sanctuary Securities, Inc. (Formerly David A. Noyes & Company) Over Inverse and Leveraged Exchange-Traded Funds Supervisory Failures
Customers of Mr. Pearl or Sanctuary Securities, Inc./David A. Noyes & Company should consult with a securities arbitration law firm. If you or a loved one were a customer of Stuart Pearl, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation.
Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as David A. Noyes & Company.
FINRA Letter of Acceptance, Waiver, and Consent No. 2019060694202
FINRA and Mr. Pearl entered into a Letter of Acceptance, Waiver, and Consent No. 2019060694202 on July 1, 2021, after FINRA alleged that between March 2017 and August 2018, Mr. Pearl made unsuitable recommendations connected with leveraged and inverse exchange-traded funds. Specifically, FINRA alleged:
- Between March 2017 and August 2018, Mr. Pearl recommended nine Non-Traditional ETFs purchases to four of his customers at the firm.
- All of these transactions were solicited.
- The customers held these positions for periods ranging from about 100 to 600 days, with the average holding period approximately 400 days.
- These extended holding periods caused Mr. Pearl’s customers to incur approximately $80,000 in losses.
- Pearl failed to perform a reasonable basis suitability analysis of Non-Traditional ETFs to understand the unique features and specific risks associated with these products before offering them to his customers.
- In fact, the prospectuses for the Non-Traditional ETFs that Mr. Pearl recommended warned that the products were risky, intended to be utilized only by knowledgeable investors who understood the features of and risks associated with Non-Traditional ETFs, and should be actively and frequently monitored on a daily basis.
- Moreover, Mr. Pearl did not understand that losses in Non-Traditional ETFs are compounded because of how the valuations reset each day.
- Therefore, Pearl violated FINRA Rules 2111 and 2010.
The FINRA AWC describes Non-Traditional ETFs as follows: “Non-Traditional ETFs are designed to return a multiple of an underlying index or benchmark, the inverse of that benchmark, or both, over only the course of one trading session — usually a single day. Non-Traditional ETFs typically rebalance their portfolios on a daily basis (also known as the daily reset). As a result, due to the effects of compounding of daily returns during the holding period, the performance of Non-Traditional ETFs over periods longer than a single trading session “can differ significantly from the performance … of their underlying index or benchmark during the same period of time.” Because of these risks and the complexity of the products, FINRA has advised its members that Non-Traditional ETFs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”
Financial Advisor Stuart L. Pearl (CRD No. 1500833)
Stuart Pearl, who is currently not registered with any broker-dealer, has 32 years of experience in the securities industry and has been associated with the following firms:
- David A. Noyes & Company in Indianapolis, IN, from July 2015 to April 2019.
- Ameriprise Financial Services, Inc. in Deerfield, IL, from June 2010 to July 2015.
- Morgan Stanley Smith Barney in Deerfield, IL, from June 2009 to June 2010.
- Citigroup Global Markets Inc. in Deerfield, IL, from April 2001 to June 2009.
- Merrill Lynch, Pierce, Fenner & Smith Incorporated in New York, NY, from May 196 to April 2001.
In June 2015, Mr. Pearl was terminated from Ameriprise Financial Services, Inc for allegedly violating company policy related to the use of discretion in non-discretionary accounts. Mr. Pearl denied any wrongdoing. However, in 2017, Mr. Pearl was suspended for 45 days by FINRA and fined $7,500 for the same alleged conduct. After an investigation, FINRA found that on May 14, 2015, Mr. Pearl used discretion to liquidate positions in six different securities on behalf of a senior customer. The findings also stated that Mr. Pearl made unsuitable recommendations in two customers’ joint brokerage account when he recommended that the customers use margin to execute several trades.
In March 2019, Mr. Pearl was “permitted to resign” from David A. Noyes & Company. In connection with the termination, David A. Noyes & Company stated that Mr. Pearl had not followed his heightened supervision plan and would have been terminated had he not resigned.
According to his public disclosure report with FINRA, Mr. Pearl has been the subject of at least five customer disputes, all of which alleged some form of unauthorized trading.
Unauthorized trading often occurs in non-discretionary accounts, where a customer retains discretion. In non-discretionary accounts, brokers must obtain a customer’s permission every time before placing a trade.
The following is a summary of the two most recent customer disputes:
- Customer Dispute (May 2020): A customer filed a written complaint alleging that Mr. Pearl created a margin trading account without the customer’s authorization. The matter was settled by David A. Noyes & Company for monetary compensation.
- Customer Dispute (March 2019): A customer filed a written complaint alleging that Mr. Pearl made an unauthorized trade, resulting in $85,000 in damages. Specifically, the customer alleged that Mr. Pearl put on a large hedge position in the customer’s account without the customer’s knowledge. David A. Noyes & Company settled the matter for monetary compensation.
David A. Noyes & Company – A Duty to Supervise
Financial institutions like David A. Noyes & Company must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as suitable investment recommendations and unauthorized trading, 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.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with Stu Pearl or David A. Noyes & Company or suspect other inappropriate activity occurred in your investment or retirement account, contact securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at email@example.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.